Currency Analyst since 2010

USD: the risk of shutdown

There’s a risk of US government partial shutdown for the first time in 17 years at midnight tonight. The core of the problem, as usual, lies in disagreement between US Democrats and Republicans. Republicans passed a plan which would authorize 10 weeks of spending starting Oct. 1 only if much of President Barack Obama’s health law is delayed for a year. Democrats vow that they won’t allow the law to be delayed and are expected to reject the plan in Senate tonight. There’s a chance that House Republicans will pass a spending measure that lasts a few days to give the parties some more time to negotiate.

A shutdown could reduce fourth-quarter economic growth by as much as 1.4 percentage points, depending on its duration, according to economists.

BTMUFJ: “We view the shutdown initially as a USD-negative event but the longer the shutdown goes on and the more divisive it becomes ahead of the debt-ceiling deadline, the greater the risk that it begins to quickly affect broader markets outside the US and that’s when dollar buying may emerge.”

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