8 October, 2013
It is a well-known fact that the US government is experiencing a partial shutdown. However, one should not underestimate how such a drastic move can provide longer term opportunities for the cable to increase in value.
After all, it is no small matter when you consider that this move is costing the US economy $300 million a day, and forcing up to 700,000 people to take unpaid leave.
Each and every bit of news that comes from the US is consistently under strong scrutiny. This can have an adverse effect on consumer confidence. The US economy is heavily driven by consumer spending, and such a drastic turn of events is sure to have deterred spenders. It will be interesting to note, whether having so many people on unpaid leave will affect next month’s retail sales. If this is the case, then the cable will gain.
Consumer confidence has already declined for the previous two months, and internally there must now be worries that this partial government shutdown will have a negative association on the next consumer confidence release.
If consumer confidence depreciates, the Federal Reserve will continue the delay on exiting QE. The subsequent weakening of the Dollar provides even more opportunities for the cable to inflate in the near future.
It appears that the release of the Non-farm payrolls is set to be delayed this month and this alone will provide the cable with an increase in value. The NFP is crucial to the Federal Reserve, and the NFP not being released will likely all but diminish any expectations for the Federal Reserve to begin tapering their QE program in October, or perhaps in any of the coming months. Again, this will weaken the dollar and be welcomed by an increase in price for the cable.
We must look at the long term effects this government shut down could have for the US economy for the next quarter. If $300 million is being lost per day during the government shut down, one has to wonder what long term repercussions this can have on business hiring. Businesses are sure to be worried about the current situation, and there is a possibility that we may witness an increase in initial jobless claims from next week onwards.
If this is the case, then it is possible that we could witness a disappointing NFP for next month as well. This would correlate to a weakening of the dollar, and a subsequent increase in the cable.
One of the more consistent sectors of the US economy in 2013 has been their housing market. However, if the current situation lasts more than one week, this could potentially slow down thousands of mortgage applications. Any decrease in mortgage applications, or home sales in general will be welcomed by the cable.
The government shutdown is damaging the tourist industry, there is no doubt about that. National museums and other attractions are closed for the time being, and people who have saved up their hard earned money to travel to the United States have been left majorly disappointed. It will be interesting to see if this has affected tourist spending.
Overall, this government shut down could potentially have far-reaching consequences for the US economy. It is already being suggested that this controversy could slow down the US economic recovery. If the shutdown lasts more than one week, it will affect the 3rd and 4th quarter GDP results. Missing these expectations will set alarm bells ringing, and provide various opportunities for the cable to appreciate.
Written by Jameel Ahmad, Research Analyst at Blackwell Global.
Follow Jameel on Twitter @JameelAhmadFX
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