Potential “U.S. Government Shutdown”: Implications for the US dollar
October 1, 2023, is the date when there is a potential "U.S Government Shutdown" or the United States government is closed!
Institutional investors are now looking closely at the situation and its implications for the market. This is because the congress in that country has failed to submit the "12 Annual Appropriation Bills" (expense bills) for the country's government operations, based on the "Antidefiency Act 1950" where the congress failed to submit the "12 Annual Appropriation Bills".
The country's federal agencies had to stop all functions of the country's government agencies - security agencies were excluded but were not given salaries so that the congress ended the "Shutdown" period.
The prospect of a "Government Shutdown" may give rise to speculation, opportunities and risks to the currency market. However, there is still a 50% chance that this "Government Shutdown" action will be implemented.
Market Study
Based on observing the history of this "Government Shutdown" event, it has the potential to have an impact on the currency of the US dollar.
1. "Government Shutdown" in 2013, this event caused the U.S dollar to increase by 0.4% within 11 days but after that experienced a fall of 1.2% within 17 days after the "Shutdown". And it has taken three months for the U.S. dollar to recover.
2. In 2018-2019, the U.S dollar was trading strong (the economic situation was strong and equity markets were trading low) before the "Government Shutdown", however the currency had fallen by 0.8% during the implementation of the "Government Shutdown" and continued to fall by 1.4% for 12 days, and it also took three months for the U.S. dollar to recover.
3. The current economic situation in America is seen in the same way as in 2018-2019, at which time economic growth was strong and the Fed was approaching the end of implementing the increase in benefit rates.
4. Based on market history observations, if the "government shutdown" will take effect, we estimate that the US dollar currency may experience a fall of 1% - 1.5% and will recover again like the situation above. However, the current economic situation and the Fed's financial policy are still the main indicators of the performance of the U.S. dollar currency.
