US stockmarkets fell and the dollar dropped to an eight month low yesterday over growing concerns of the economic effects of the stand-off over the US budget.
The S&P 500 and Dow Jones indices both finished the day down 0.9 per cent, while the Nasdaq fell by more than 1 per cent.
The dollar fell against the euro, Swiss franc and the yen, to stand at its lowest value in eight months against the euro.
The US has entered a fourth day of a shutdown of non-essential parts of the federal government but this is being overshadowed by concerns that the US government and Congress will be unable to agree an increase in the US debt ceiling which would result in a default on its government debt.
The concerns also spread to Asian equity markets, with Japan’s Nikkei index down 0.7 per cent at the close.
Yesterday both the US Treasury and IMF managing director Christine Lagarde warned of dire effects if the US was unable to agree a deal to raise the US debt ceiling.
A report from the US Treasury warned that if an agreement on the debt ceiling is not reached before 17 October the US would be plunged into the biggest recession since the Great Depression.
The report said: “A default would be unprecedented and has the potential to be catastrophic. Credit markets could freeze, the value of the dollar could plummet, US interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”
And Lagarde urged US politicians to find a way to break the deadlock: “In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.”
In early trading on Friday, UK stockmarkets were also down, with the FTSE 100 down by 0.2 per cent.