A 'fiscal cliff' of tax hikes and drastic spending cuts has been avoided in the U.S., but one UK analyst warns calls it 'a fudged deal' and predicts more deficit problems.
LONDON, ENGLAND, UNITED KINGDOM (REUTERS) - The U.S. House of Representatives voted on Tuesday (January 1) to avert the U.S. "fiscal cliff," sparing most Americans from tax hikes and spending cuts that had threatened to plunge the U.S. economy into recession in 2013.
However, one UK analyst predicted that the deal would lead to further problems down the line.
"We have avoided it (the 'fiscal cliff') but it is a fudged deal and I think anybody who thinks that it's anything else probably deludes themselves. I think we are going to hit problems again come February when President Obama presents his budget for 2014. Clearly one of the issues in that is going to be the debt ceiling and the budget deficit which clearly at 16.4 trillion dollars is wholly unacceptable," said David Buik, senior strategist fromCantor Index.
The measure now moves to President Barack Obama's desk for his signature, which is expected to come quickly.
The highly-liquid dollar -- a currency bought in times of market stress or economic uncertainty -- came under pressure and fell against the euro and the Australian dollar. Further weakness was expected in the U.S. currency as more investors with fresh budget allocations return after the holidays.
"We don't think the fiscal cliff is the real story. We think the Fed is what's driving things. Mr. Bernanke has announced significant balance sheet expansion, printing of money. That's going to keep the Dollar weak," said Steven Saywell, Global Head of FX Strategy at BNP Paribas.
The 257-167 vote in the House, which relied heavily on Democratic votes to win passage, ended hard-fought negotiations over tax rates but leaves many budget issues unresolved before another fiscal deadline in about two months - the need to raise the federal borrowing limit