U.S. credit ratings agency Fitch Ratings on Tuesday placed the U.S. 'AAA' debt on "rating watch negative" due to congressional inability to pass a spending package, which is bringing the country dangerously close to default.
The U.S. is due to hit its debt ceiling on Thursday, after which Washington won't be able to guarantee all of its obligations.
Meanwhile, a government shutdown that began on Oct. 1 continued at the time of writing on Tuesday after U.S. stock markets closed.
"The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30 billion," Fitch said in a statement.
"Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."
The dollar wiped out earlier gains on the news.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.07% at 80.54 on Tuesday after spending most of the day in positive territory.
Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a proposal.
The news sent the dollar falling from gains posted earlier in the session, when both the Senate and the House had prepared roadmaps to end the crisis that were viewed by many as compatible.
The House was due to vote Tuesday evening on Republican-led plans to reopen the federal government and avoid a default, though fears the proposal could come with revisions previously rejected by Democrats frayed nerves and took its toll on the greenback.
The U.S. is due to hit its debt ceiling on Thursday, after which Washington won't be able to guarantee all of its obligations.
Meanwhile, a government shutdown that began on Oct. 1 continued at the time of writing on Tuesday after U.S. stock markets closed.
"The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30 billion," Fitch said in a statement.
"Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."
The dollar wiped out earlier gains on the news.
The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was down 0.07% at 80.54 on Tuesday after spending most of the day in positive territory.
Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a proposal.
The news sent the dollar falling from gains posted earlier in the session, when both the Senate and the House had prepared roadmaps to end the crisis that were viewed by many as compatible.
The House was due to vote Tuesday evening on Republican-led plans to reopen the federal government and avoid a default, though fears the proposal could come with revisions previously rejected by Democrats frayed nerves and took its toll on the greenback.