The US Government Can Shut Down for the First Time in 17 Years

October 1, 2013

On Monday the markets were not dominated by macroeconomic indicators but by a political crisis in Italy and a fiscal crisis in the USA. The US dollar had fallen a little to most major currencies by the end of the day amid aroused concerns that a failure of negotiations on the US budget for a new financial year could weaken economic growth of the country.   

According to the evening of September, 30 two houses of the US Congress didn’t manage to bring their positions on budget issues closer, which may threaten the US government with the first shutdown in 17 years. This factor is putting pressure on the dollar and this issue is still dominating macroeconomic releases. Chicago PMI turned out better than expected (54 p.) and rose to 55.7 p. in September in comparison with 53 p. in August.

The euro opened with a fall amid aggravated political crisis in Italy. The leader of the Conservative Party Berlusconi withdrew his support from the government coalition last Saturday. Italian Prime Minister said that he would demand a vote of confidence on Wednesday to prevent government shutdown. The Fitch published statements about the situation in Italy warning that if Enrico Letta’s government didn’t get a vote of confidence on Wednesday, financial goals of the country may get in jeopardy.  

The euro leveled all its losses after the news that some members of Berlusconi’s party may quit the party and support the Prime Minister in order to prevent the collapse of the Italian government. Euro-zone inflation dropped to the lowest reading in September for 3.5 years – 1.1% at an annual rate, which is significantly lower than the target ECB level. Inflation will not make any obstacles for further economic stimulation if the ECB decides it is necessary to support economy.

The pound updated a monthly height on Monday and reached almost 9-month high Vs the dollar amid positive housing market data. The pound showed the highest growth for September in per cent for more than three years. According to the Bank of England Mortgage Approvals rose to 62.2 thousand in August against 60.9 thousand prior month, which became the highest reading since March, 2008. Hometrack House Prices rose by 0.5% in September, which became the highest monthly growth since May, 2007.

The Australian dollar had almost no reaction on HSBC Final Manufacturing PMI decline for September, which was revised to 50.2 from preliminary reading of 51.2 – however, the result turned out slightly better than the reading in August 50.1. New Zealand dollar was traded upwards amid Business Confidence growth in the country to the highest readings for more than 14 years. ANZ Business Confidence rose to 54.1 in September against 48.1 in August – which has become the highest reading since March, 1999.

 

Canadian dollar also had almost no reaction to July economic growth data which turned out better than forecasted. Canadian GDP rose by 0.6% in July against the expected growth by 0.5% having shown the highest increase rates for 2 years. The yen reached a monthly height against the dollar but then lost all its growth on the back of correctional bounce of stock markets in the second half of the day.

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