Thursday, July 28, 2011

Deutsche Bank: 4 scenarios of US debt debates outcome

Unites States has been enjoying the top AAA credit rating from the very moment debt ratings were introduced, so it’s difficult to get used to the thought that the odds of the nation’s downgrade are high enough. 

Analysts at Deutsche Bank believe that there are 4 possible outcomes of US debt problems:

  1. The White house and Congress will come up with a deal that will rule out the possibility of any rating cut.
  2. The deal that will help the nation to avoid default though won’t be able to prevent 1-notch downgrade.
  3. The deal will fail to solve the debt issues and US rating will be cut by several notches.
  4. Default.

According to the specialists, the second variant seems to the most likely. Even in such case the greenback will get under negative pressure. Even though the markets seem to accept the possibility of rating’s reduction, the actual downgrade will still be a shock and dollar may lose 2% more versus the basket of currencies.     

In case of the third scenario investors’ risk aversion will become very strong. In the short term this may be dollar-positive, but the economists don’t believe that US currency will be encouraged by the sustainable advance.

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