Search for safe havens as US budget impasse continues

Dollar falls sharply and gold touches record high as IMF chief piles on political pressure

The US dollar fell to a record low against the Swiss franc and gold traded within a whisker of its all-time high as the failure to resolve the American debt crisis intensified the scramble among investors for safe-haven assets.

Christine Lagarde, the new chief executive of the International Monetary Fund, put pressure on Republican and Democrat politicians to end their deadlock over the terms of an agreement to raise the US debt ceiling to $14.3 trillion (£8.7trn), as they edged closer to a devastating default which she said would have serious consequences for the global economy.

Ms Lagarde said: "On the debt ceiling, the clock is ticking and clearly the issue needs to be resolved immediately. Indeed, an adverse fiscal shock in the United States could have serious spillovers on the rest of the world. But, more fundamentally, a credible fiscal adjustment plan is needed sooner rather than later."

The dollar dropped to a record low of 0.799 Swiss francs and slid below 78 yen for the first time since March, while gold hovered around Monday's all-time high of $1,622.49 an ounce as the US debt stand-off undermined the American currency and its Treasuries – traditionally regarded as safe-haven bonds in times of trouble. Ms Lagarde was speaking the morning after a live televised address from President Barack Obama late on Monday night in which he warned that failure to raise the debt ceiling would have grave consequences.

"For the first time in history, our country's triple-A credit rating would be downgraded, leaving investors around the world to wonder whether the United States is still a good bet," Mr Obama said.

In comments that suggested any agreement was still a way off, he added: "I have told leaders of both parties that they must come up with a fair compromise in the next few days that can pass both houses of Congress – a compromise I can sign up to."

Mr Obama warned against a "reckless" outcome if the debt ceiling is not raised, with John Boehner, the Republican House Speaker, responding by accusing the President of seeking a "blank cheque".

Although both sides agree there is a need to raise the debt ceiling, they cannot agree a package of tax increases and spending cuts that should accompany the increased borrowings.

Despite little sign of movement, Gene Sperling, Obama's top economic adviser, said yesterday that Republicans and Democrats could still reach a budget deal this week if the sides show a "minimum amount of compromise".

Treasuries are rapidly losing their status as a safe-haven asset as Tuesday's deadline for raising the debt ceiling looms, since the lack of a deal would push the US into default and its government bonds would tumble in value. In a note yesterday, Moody's, the ratings agency, said that "fund managers have been de-risking their portfolios by reducing exposure to US Treasuries and government securities and have been developing contingency plans in the event that there is a US sovereign default or the US credit profile deteriorates further."

Moody's published its note shortly before a, normally routine, auction of $35bn-worth of two-year US Treasuries. Although the debt was sold comfortably, interest from foreign investors was weaker than normal.

Although most economists expect a deal to be clinched at the last moment, the looming deadline is spooking investors already nervous about the outlook for the hugely indebted European Union and the US.

peopleFrankie Boyle responds to referendum result in characteristically offensive style
Life and Style
Couples have been having sex less in 2014, according to a new survey
New Articles
i100... with this review
Holly's review of Peterborough's Pizza Express quickly went viral on social media
footballTim Sherwood: This might be th match to wake up Manchester City
Arts and Entertainment
musicHow female vocalists are now writing their own hits
New Articles
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
musicBiographer Hunter Davies has collected nearly a hundred original manuscripts
Blahnik says: 'I think I understand the English more than they do themselves'
Arts and Entertainment
Michelle Dockery as Lady Mary Crawley in Downton Abbey
TVInside Downton Abbey series 5
Life and Style
The term 'normcore' was given the oxygen of publicity by New York magazine during the autumn/winter shows in Paris in February
fashionWhen is a trend a non-trend? When it's Normcore, since you ask
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Senior BA - Motor and Home Insurance

£400 - £450 Per Day: Clearwater People Solutions Ltd: **URGENT CONTRACT ROLE**...

Market Risk & Control Manager

Up to £100k or £450p/d: Saxton Leigh: My client is a leading commodities tradi...

SQL Developer - Watford/NW London - £320 - £330 p/d - 6 months

£320 - £330 per day: Ashdown Group: The Ashdown Group have been engaged by a l...

Head of Audit

To £75,000 + Pension + Benefits + Bonus: Saxton Leigh: My client is looking f...

Day In a Page

Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits
Mystery of the Ground Zero wedding photo

A shot in the dark

Mystery of the wedding photo from Ground Zero
His life, the universe and everything

His life, the universe and everything

New biography sheds light on comic genius of Douglas Adams
Save us from small screen superheroes

Save us from small screen superheroes

Shows like Agents of S.H.I.E.L.D are little more than marketing tools
Reach for the skies

Reach for the skies

From pools to football pitches, rooftop living is looking up
These are the 12 best hotel spas in the UK

12 best hotel spas in the UK

Some hotels go all out on facilities; others stand out for the sheer quality of treatments
These Iranian-controlled Shia militias used to specialise in killing American soldiers. Now they are fighting Isis, backed up by US airstrikes

Widespread fear of Isis is producing strange bedfellows

Iranian-controlled Shia militias that used to kill American soldiers are now fighting Isis, helped by US airstrikes
Topshop goes part Athena poster, part last spring Prada

Topshop goes part Athena poster, part last spring Prada

Shoppers don't come to Topshop for the unique
How to make a Lego masterpiece

How to make a Lego masterpiece

Toy breaks out of the nursery and heads for the gallery
Meet the ‘Endies’ – city dwellers who are too poor to have fun

Meet the ‘Endies’ – city dwellers who are too poor to have fun

Urbanites are cursed with an acronym pointing to Employed but No Disposable Income or Savings
Paisley’s decision to make peace with IRA enemies might remind the Arabs of Sadat

Ian Paisley’s decision to make peace with his IRA enemies

His Save Ulster from Sodomy campaign would surely have been supported by many a Sunni imam