The September Swiss Franc posted a record high versus the U.S. Dollar overnight after a bipartisan plan to raise the U.S.debt ceiling fell apart late Friday, unsettling the financial markets and triggering demand for safe-haven currencies.
Although most investors expect a deal to be reached in order to avoid a downgrade by the rating services, the whole process has been upsetting as government representatives have decided to put politics ahead of the economy. In addition, some analysts are now saying that theU.S.does not have to default and that the August 2 deadline is something that can be extended.
Although the market appears to be disappointed with the week-end events, there doesn’t seem to be a panic. In fact, all of the global indices have pared losses substantially. The market is not demanding a miracle, just good sound financial judgment. Traders want to see a credible long-term plan that increases the debt ceiling and cuts spending. The funny thing is, despite all the rhetoric about what the U.S.should or should not do, global investors continue to buy treasury bonds.
Also gaining ground overnight is the September Japanese Yen. The increasing risk of a downgrade means investors are losing confidence in holding U.S. assets. If investors decide to pull money out of U.S.stocks and bonds then the negative outflows will damage the U.S. Dollar.
In conclusion, it looks as if the Yen could gain if Japanese investors decide to pull out of U.S. investments. At the same time, it appears that the Swiss Franc is the safest place for those who prefer protection against the European andU.S. sovereign debt problems.
