What happens to the US dollar when Congress reaches a government shutdown deal?

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The market reaction to headlines about potential compromise and Boehner backing off the debt ceiling are a good example of what will likely happen when a deal is eventually reached. Unless the deal comes like a bolt out of the blue (rare with so many leaks in Washington) or on the weekend, there will be a chance to chase the headlines.

The biggest USD gains were against CHF and JPY — the safe haven currencies. Expect that to continue. Since last Wednesday, when a shutdown became a real threat, USD/JPY is down 1.75%, or 1.60 pips. Even before that, worries about the October Congressional hurdles took a bite out of the pair.

A best case scenario is a deal that funds the government for at least six months (hopefully a year) and pushes back the debt ceiling at least as long. That’s the kind of deal that would put USD/JPY on a path to 100.

My main worry on the downside at the moment is that that Democrats refuse to negotiate and go for total victory.

Author: Adam Button

Adam Button is the managing editor of ForexLive™. He was previously the chief currency strategist at XForex and has also worked with Intermarket Strategy. Adam believes there's an edge in knowing every tidbit of news. He was formerly the head of the markets team at the Canadian Economic Press and is a graduate of Ryerson University. Adam lives in Montreal, follow him on Twitter: @FX_Button.

2013-10-03T19:02:04+0000

All|Americas|Japanese yen|Politics|Regions|US Dollar

congress|shutdown|US Dollar

Adam Button

14 Comments

  1. What about usdchf bru? yo think it could raly to 92+

  2. Sorry Adam, but here is solid evidence that the Republicans are to blame:

    http://www.youtube.com/watch?feature=player_embedded&v=xKiQp-RB0Yw

    :)

  3. Adam,

    What do you think will happen with the EUR and the AUD? Will they go up or down?

  4. Same sort of thing for USD/CHF but I’m thinking more around 0.9100 but it depends on the news … PS. I love being called ‘bru’ :)

  5. Haha are you from SA?

  6. No, I’ve never been. I’m from Canada but in Panama at the moment.

  7. Hi Adam, I believe that the Dems/WH have negotiated to the point of there is no more to negotiate save a deal on the ACA… which I for one hope that the POTUS does not give in on.

  8. Hi Adam,

    Lets assume the best case scenario you mentioned happens on the weekend, what would be the immediate impact on EUR/USD and GBP/USD? also, what do you think if they doesnt come to solution until next week?

  9. when expect they reach the deal?
    is there deadline?

  10. I think EUR is headed higher later but it will kick down on the headlines. AUD less so, because risk trades will rally.

  11. Around Oct 17 the US government runs out of money and will default.

  12. woooooooooooooooooooooooh, Adam, you really calling for default?

  13. *would* default. Heck no, zero chance of that happening. He’s asking for a deadline.

  14. As long as money printing press keeps on running, an official default is officially out of the question.

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