The disparity in viewpoints between Republicans and Democrats on the US budget will increase the likelihood of the country defaulting on its debts, suggested a report here on Sunday.
The US federal government has been shut down since October 1, as Republicans in Congress want to undermine the Conservatives healthcare act as a condition of funding government operations, read the report by the National Bank of Kuwait.
On Friday, Republicans in the US House of Representatives and President Barack Obama met amid efforts to avert a looming debt crisis. The Republicans have offered the president a short-term debt limit increase to stave off default.
The US government is expected to reach its borrowing limit by October 17, but a divided Congress might prove unable to raise the debt ceiling. That, in turn, raises the specter of a default.
The Federal Reserve Banker Bullard said, "The government shutdown makes an October taper less likely and urged politicians in Washington to fix the fiscal deadlock". In addition, Treasury Secretary Jacob Lew urged Congress to raise the government's borrowing limit before October 17, warning that a Republican idea to prioritize payments with cash on hand could cause "irrevocable damage" to the US economy.
Last week, the Chinese prime minister brought up the issue of the possibility of the US defaulting on its debt with the US Secretary of State John Kerry, saying that "China is highly concerned with the United States' debt ceiling issue", and that they were paying great attention to the matter. China currently holds the largest amount of US debt, holding about USD 1.28 trillion.
Meanwhile, the dollar index rallied reaching a high of 80.595 recovering from last week's low of 79.83, as optimism grew that Washington may soon finalize a stop-gap deal to avert a devastating US default.
Gold fell about 1.5 percent on Friday reaching its lowest level in three months as nervous investors fled the bullion market on signs a deal might be near to avert a potential US debt default, Gold closed for the week at USD 1, 272.62 per onus.
The Federal Open Market Committee's meeting summary was held last week, which said that "the information reviewed for the September 17-18 meeting suggested that economic activity continued to increase at a moderate rate.
"Private-sector employment rose further in July and August, but the unemployment rate was still elevated. Total consumer price inflation picked up in recent months but continued to be modest, and measures of longer-run inflation expectations remained stable." The US jobless claims data is the only government report being published during the shutdown, and so is being closely watched for clues on the health of the job market.
The number of Americans filing for jobless claims reached a six-month high last week due to the partial US government shutdown that began to hit some non-federal workers.
On Europe, German exports improved in August, rising slightly less than expected but more than imports and widening the trade surplus, in a sign that the foreign trade will not drag too much on growth in Europe's largest economy.
German economy ministry data showed last week, that the German industrial production rallied in August, adding to signs that Europe's largest economy is benefiting from the euro area's recovery. Output rallied 1.4 percent from July as economists forecast an increase of one percent. Production advanced 0.3 percent from a year earlier when adjusted for working days.
Meanwhile, the United Kingdom industrial production unexpectedly dropped in August by the most in almost a year, casting doubt on the strength of the third-quarter recovery. British industrial output fell by 1.1 percent on the month in August, the biggest drop since September 2012.
The Bank of England made no change to its monetary policy on last week's meeting, maintaining their pledge to keep interest rates at a record low for the near future despite signs of a strengthening economic recovery.