If the Democrats and the Republicans manage to strike a deal on time, it will not only help to avert the fiscal cliff but will also prevent the Fitch rating agency from carrying out its threat, articulated last Wednesday, of cutting the US rating.
President Barack Obama's offer consists of raising 1.2 trillion dollars in revenue through taxing households with an income exceeding 400.000 dollars per year. His plan includes 400 billion dollars in health care savings.
After twenty-one House of Representatives members rejected on Friday Boehner's “Plan B”, anticipating higher taxes for people earning more than 1 million dollars annually, the negotiations disintegrated and the were finally adjourned until after Christmas.
"What the president has offered so far simply won't do anything to solve our spending problem and begin to address our nation's crippling debt," John Boehner said on Friday, "The House has done its part to avert this entire fiscal cliff. ... The events of the past week make it clearer than ever that these measures reflect the will of the House."
Nick Bennenbroek, Head of Currency Strategy, Wells Fargo Bank comments: "The inability of the House to pass this particular measure has injected some new uncertainty into the budget talks, in terms of how negotiations between Republicans and the White House will proceed from here, and on whether Mr. Boehner will be able to muster enough support in the House should U.S. political leaders come to a deal. While the latest developments have not scuttled the possibility of a broader budget agreement being reached, the timing is now very tight and the margin for error even slimmer. The ‘safe-haven’ strength in the greenback and yen, and weakness in most foreign currencies, is understandable given the last events – indeed the reaction so far is arguably somewhat modest. Further U.S. dollar strength and foreign currency weakness is possible with the uncertain backdrop likely to persist for at least the next few days."