With the U.S. fiscal situation coming right down to the deadline without a deal, Fitch Ratings has placed the United States on rating watch negative.

The move comes as U.S. authorities have not raised the federal debt ceiling, with the U.S. Treasury expecting to exhaust its extraordinary measures by Oct. 17, leaving cash reserves of just US$30 billion. The rating agency says that it continues to believe that the debt ceiling will be raised soon, but it notes that “the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”

The Treasury would still have some capacity to make payments after Oct. 17, but Fitch warns that it would face volatile revenue and expenditure flows. “The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as social security payments to citizens – all of which would damage the perception of U.S. sovereign creditworthiness and the economy,” it says.

Additionally, Fitch says that the prolonged negotiations over raising the debt ceiling “risks undermining confidence in the role of the U.S. dollar as the preeminent global reserve currency, by casting doubt over the full faith and credit of the U.S.”

And, it says that the repeated brinkmanship over raising the debt ceiling “also dents confidence in the effectiveness of the U.S. government and political institutions, and in the coherence and credibility of economic policy. It will also have some detrimental effect on the U.S. economy.”

Fitch expects to resolve the rating watch by the end of the first quarter of 2014 at the latest, although the timing will depend on events, including the duration of any agreement to raise the debt ceiling, it says. Although, if a default occurs, Fitch would downgrade the U.S. sovereign until the default event is cured, it says.

Assuming that there is a deal to raise the debt ceiling and to resolve the government shutdown, “the outcome of a subsequent review of the ratings would take into account the manner and duration of the agreement and the perceived risk of a similar episode occurring in the future,” it says.

The rating agency also notes that risks to the financial sector are low, and that it has a stable outlook on the U.S. banking sector.