The dollar tumbled last night as Barack Obama postponed crisis talks aimed at securing a deal to raise the United States debt limit and avert a new global financial calamity.
The White House said the President and Vice President Joe Biden were due to meet with senior politicians to ‘make clear the need for Congress to act to pay our bills and reopen the government’.
The US looks set to hit its $16.7 trillion (£10.5 trillion) borrowing limit on Thursday and will default on its debts if Democrats and Republicans fail to agree a deal to raise the ceiling. It is feared a US default will trigger a new financial crisis and tip the global economy back into recession.
‘My hope is that they will find a way out and the enormity of this is understood,’ he said.
Cunliffe, who has most recently served as Britain’s top envoy to the European Union in Brussels and succeeds Paul Tucker at the central bank next month, said UK lenders should be drawing up contingency plans.
The row over the debt ceiling comes amid a partial government shutdown in the US.
All but the most essential services have been closed since the new financial year started on October 1, after warring politicians failed to agree a budget for the next 12 months.
The dollar fell against a host of other major currencies around the world, with the pound rising as high as $1.6018.
‘The uncertainty relating to the US debt ceiling is continuing and will intensify dollar selling pressure,’ said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi.
Obama yesterday summoned Senate Democratic majority leader Harry Reid, Senate Republican leader Mitch McConnell, Republican House speaker John Boehner and House Democratic minority leader Nancy Pelosi to talks to try to reach a solution.
But the summit was delayed to give leaders in the Senate more time to thrash out an agreement.
‘The President continues to urge Congress to pass a bill that raises the debt ceiling and lends the certainty our businesses and the economy needs,’ a White House spokesman said.
Shares on stock markets around the world held firm yesterday amid hopes a deal will be secured.
The FTSE100 index gained 20.46 points to close at 6507.65 in London and shares on Wall Street recovered after early losses.
Mike Ingram, market strategist at BGC Brokers, said: ‘The world continues to drift towards a catastrophic US debt default.
‘So awful is the prospect that no-one in financial markets seriously thinks the US Congress will actually let it happen.
‘Like the fiscal cliff in 2012 and the last debt ceiling scare in 2011, the view remains it will all work out – eventually.
They are probably right, but it still feels that equity markets have been approaching this issue with unusual complacency.’
Market analyst Craig Erlam of trading firm Alpari, said: ‘If we go another 48 hours without a deal to avoid the debt ceiling being agreed, we could see the rate of selling pick up, and that comfort replaced with panic.’
The looming crisis overshadowed last week’s annual meetings of the World Bank and International Monetary Fund in Washington.
Christine Lagarde, managing director of the IMF, warned of ‘massive disruption the world over’ if the US failed to break the political deadlock.
‘We would be at risk of tipping yet again into a recession,’ she said.