The increasing possibility that interest payments will be missed on US Treasuries poses serious risks to the global financial system and could trigger rounds of central bank intervention should USD go into free fall. The political stalemate in the US, should it become protracted, could result in a major sell-off of USD, particularly against safe haven currencies such as JPY, CHF and even the EUR. For traders this would present a lucrative one-way bet, at least for a short while. By Justin Pugsley, Markets Analyst MahiFX Follow MahiFX on twitter. Both Japan and Switzerland have central banks, which have very publicly demonstrated a commitment to capping the rises of their currencies. However, an across the board USD rout could see central banks intervening in a concerted fashion to stabilise the financial system – that would lead to many traders rushing to cover their USD short positions. This scenario is a very real possibility if the impasse carries on in Washington. The IMF warned on Tuesday of “major disruptions in financial markets” if interest isn’t paid on US debt, which could happen if US politicians don’t agree to lift the debt ceiling by October 17 – the date when the government supposedly runs out of money to make the payments. Triangle formation could be powerful catalyst for USD/JPY breakdown Rout would likely start in asset markets Most likely any major sell-off in USD would be proceeded by a crash in stocks and possibly US Treasuries as well – two markets that have a strong influence on the US Federal Reserve’s actions. However, that could also be the cue for politicians to temporarily set differences aside and come to an agreement over the US debt ceiling in the name of saving the economy and US jobs. The IMF also rightly warned that a protracted political stalemate would cause very real damage to the economy – the implication being that the US Federal Reserve would carry on with its quantitative easing programme for a lot longer. The likely appointment of Fed Vice Chairwoman Janet Yellen as head of the Fed to replace Ben Bernanke should see a strong continued bias towards easy money policies. All of this is bearish for USD. However, other economies would soon be impacted and it wouldn’t be long before the likes of the Bank of England would begin mulling increases in new money creation to support growth at home. The short-term outlook for USD might be bearish, but such are the economic and political uncertainties that it’s exceptionally difficult to make a longer-term call on the major currencies pairs at the moment. Further reading: How would a US debt default impact USD? Justin Pugsley Justin Pugsley MahiFX is headed by David Cooney, former global co-head of currency options and e-FX trading at Barclays Capital and responsible for the award winning e-commerce platform BARX and Susan Cooney, former head of e-FX Institutional Sales in Europe for Barclays Capital. Operating as a market maker, MahiFX provides traders direct access to institutional level execution speeds and spreads through its proprietary-built fully automated pricing and risk management technology, lowering the cost of retail forex trading. MahiFX global operations are headquartered in Christchurch, New Zealand with offices in London, UK with development and support teams in both locations for 24 hour service. The company is regulated by The Australian Securities and Investments Commission (ASIC), Australiaâ€™s corporate, markets and financial services regulator. Article by Justin Pugsley, Markets AnalystÂ MahiFXÂ Follow MahiFX onÂ twitterÂ and onÂ facebookÂ Disclaimer: This material is considered a public relations communication for general information purposes and does not contain, and should not be construed as containing, investment advice or an investment recommendation, or an offer of or solicitation for any transactions in financial instruments. MahiFX makes no representation and assumes no liability as to the accuracy or completeness of the information provided. The use of MahiFXâ€™s services must be based on your own research and advice, and no reliance should be placed on any information provided or comment made by any director, officer or employee of MahiFX. Any opinions expressed may be personal to the author, and may not reflect the opinions of MahiFX, and are subject to change without notice View All Post By Justin Pugsley Opinions share Read Next FOMC Minutes boost USD – Tapering isn’t off the table Yohay Elam 9 years The increasing possibility that interest payments will be missed on US Treasuries poses serious risks to the global financial system and could trigger rounds of central bank intervention should USD go into free fall. The political stalemate in the US, should it become protracted, could result in a major sell-off of USD, particularly against safe haven currencies such as JPY, CHF and even the EUR. For traders this would present a lucrative one-way bet, at least for a short while. By Justin Pugsley, Markets Analyst MahiFX Follow MahiFX on twitter. 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