3 Oct 2013
Shut down may weigh on GDP but risk-off developments will be USD-supportive
FXstreet.com (London) - As we head into the third day of the partial shutdown of the US government, some of the market bullishness has begun to dissipate. The S&P continued to rally into the September 30 deadline and beyond, either on the assumption that congress would quickly come to a compromise agreement to break the deadlock or that a government shutdown would help to kick the chances of a Fed tapering well into 2014. However, the index is beginning to run out of steam as the shutdown runs into the weekend.
A meeting between President Barack Obama and congressional leaders ended last night with no deal to re-open the government. But as the shutdown threatens to roll into the debt ceiling debate, just what effect could it have on the dollar?
The shut-down is not going to boost the US economy, but figures for the GDP drag caused vary wildly. Some analysts have a figure of 0.1 to 0.3 percent per week of the shutdown, while some have quoted numbers as high as 1.4 percent. But while President Obama is quick to talk up any damage that could by caused by the shutdown, they key is the duration. While government workers being sent down may not make them particularly happy, the temporary loss of the person operating the panda cam or Michelle Obama’s twitter feed is not going to cause a major drag on American industry. But from a market point of view, the furloughing of government statisticians may throw a spanning onto the works. It has already been announced that Friday’s non-farm payroll data will not be released as scheduled, and USDA crop report delays are causing some concern.
And from an FX point of view, there is currently nothing to be particularly concerned about. American deficit reduction is steadily on track, and past shutdowns have been resolved in a time scale that, if replicated, would see congress reach a resolution before the US hits its debt ceiling,projected for mid-October. And if the deadlock continues to run, risk-off sentiment would play into dollar strength.
A meeting between President Barack Obama and congressional leaders ended last night with no deal to re-open the government. But as the shutdown threatens to roll into the debt ceiling debate, just what effect could it have on the dollar?
The shut-down is not going to boost the US economy, but figures for the GDP drag caused vary wildly. Some analysts have a figure of 0.1 to 0.3 percent per week of the shutdown, while some have quoted numbers as high as 1.4 percent. But while President Obama is quick to talk up any damage that could by caused by the shutdown, they key is the duration. While government workers being sent down may not make them particularly happy, the temporary loss of the person operating the panda cam or Michelle Obama’s twitter feed is not going to cause a major drag on American industry. But from a market point of view, the furloughing of government statisticians may throw a spanning onto the works. It has already been announced that Friday’s non-farm payroll data will not be released as scheduled, and USDA crop report delays are causing some concern.
And from an FX point of view, there is currently nothing to be particularly concerned about. American deficit reduction is steadily on track, and past shutdowns have been resolved in a time scale that, if replicated, would see congress reach a resolution before the US hits its debt ceiling,projected for mid-October. And if the deadlock continues to run, risk-off sentiment would play into dollar strength.