GBP/USD Sterling breaks highs on US debt ceiling stalemate

FXstreet.com (London) - Sterling has broken through 9-month highs against the dollar on the US congressional failure to resolve debt ceiling negotiations ahead of its midnight deadline.

The failure of Democrats and Republicans to come to a compromise agreement to provide a temporary extension to the debt ceiling means that the US government has gone into partial shutdown for the first time in 17 years.

GBP/USD climbed to USD1.6248 on the failure to reach an agreement. The dollar selling can be attributed to negative sentiment rather than any real dollar-negative fundamentals. President Obama has been active in talking down the US economy with warning of a destabilising effect caused by a government shutdown. But while, yes, the shutdown will be a negative for risk assets, thankfully the US government and the US economy remain two separate entities.

Unless aggregate demand keeps you up at night, 800,000 government workers being sent home as a result of the partial shutdown will not provide a significant drag on real GDP.

The impasse was reached after House Republicans refused to back down on demands to tie any raise of the debt ceiling with a cut in federal spending, notably including a 1-year delay in the implementation of the Affordable Care Act. With the Democrat-controlled Senate killing on the floor any bill that included a curtailing of the Obamacare programme.

The US government remains in partial shutdown, and negotiations will continue ahead of the hard ceiling estimated to be reached by mid-October.