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Barack Obama pauses during a speech at the White House last night. American stock markets have continued to fall today despite the debt deal that avoids an unprecedented default. Carolyn Kaster/AP

US debt relief is short lived as dollar and stock markets slide

The world’s stock markets are all down, as the joy over the US deal to avert a default quickly peters out.

THE JOY OVER the US Congress deal that stops the country from defaulting on its debt has been short-lived – as the world’s stock markets almost all veer into negative territory.

The Senate yesterday passed a bill raising the debt ceiling by 74 votes to 26 – with President Barack Obama signing the bill as soon as it landed on his desk – thereby averting an unprecedented US sovereign default, and safeguarding its AAA debt rating for the time being.

But despite the unprecedented deal, which will see the country’s national debt reduced by somewhere between $2.1 and $2.4 trillion, the cost of borrowing for the US government has risen moderately this morning while the US dollar slides against other currencies.

This lunchtime the dollar was down by over a cent (or around 0.75 per cent) against the euro, and by almost a cent (0.55 per cent) against the pound.

Stock markets were also significantly lower, with the Dow down by 2.2 per cent, the S&P 500 down by over 2.5 per cent, and the NASDAQ down by 2.75 per cent.

In Europe, meanwhile, markets were verging towards their lowest levels for almost a year – with the FTSE 100 down by 1.25 per cent, the DAX in Frankfurt down by 1.1 per cent and the CAC 40 in Paris down by 0.6 per cent.

In Dublin, the ISEQ index was at 2.681.89, down by 1.05 per cent on its closing value yesterday.

The US deal did not avert a total government shutdown: a Senate deadlock failed to produce a deal to fund the Federal Aviation Administration, which left over 4,000 employees temporarily out of work.

The agency is now depending on safety inspectors to work without pay for at least a month, the New York Times said, as both houses of Congress are now on recess until September.

President Obama has separately indicated that his next packet of Budget measures may include tax increases, saying that with the country needing to cut hundreds of billions in spending every year, “everyone is going to have to chip in”.

All data taken from Bloomberg, expect the ISEQ index which is taken directly from the Irish Stock Exchange.

More: A bluffer’s guide to… the US debt ceiling >

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