The dollar appreciated Monday, oil prices rose and the world stock markets advanced after politicians in Congress came, after months of disputes, to a compromise on debt ceiling increase, thus avoiding a default which, according to White House would have had devastating effects on the markets.
The agreement provides for the debt limit increase from 14,300 billion dollars, reached in May, with at least 2,100 billion dollars, enough to meet the government needs by 2013, according to Bloomberg.
The agreement includes also the reducing of costs by 917 billion dollars over the next decade and savings of 1,500 billion dollars, with sources to be identified by a special commission by the year end.
If the commission does not find solutions, the costs will be reduced by 1,200 billion dollars in various fields, including defense, excluding social protection, writes The Wall Street Journal.
In a first phase, the debt ceiling will be raised by 900 billion dollars, and then by 1,500 billion, if Congress accepts the spending cuts recommendations of the special committee or adopts amendments to the Constitution on a balanced budget. Otherwise, the second increase of the debt ceiling will be of 1,200 billion dollars and comes with extensive cost reductions.
Congress decides Monday on the agreement
Analysts consider, however, that politicians understand the danger of relegation of the U.S. credit rating, currently at the highest possible level, “AAA”. In this scenario, the country’s financing costs will increase, forcing the need for further spending cuts, according to Reuters.
Reducing costs is the last thing that the U.S. economy needs, according to analysts, shocked by government data published on Friday, showing that the U.S. economy grew by only 0.4% in the first three months of the year and by 1.3 % in the second quarter.
The dollar appreciated 1.3% against the yen at 77.79 yen per unit, and by 0.2% against the euro at $1.4376 per euro on the Tokyo Stock Exchange. Quotation of gold fell by 1.1% to 1610.70 dollars an ounce. Oil prices for the U.S. market rose by 1.6% to $97.19 per barrel in New York Stock Exchange.
European shares rose in the opening session on Monday after strong declines last week, and bank titles had the best developments. U.S. agreement also boosted Asian stock markets.