United States Government shutdown impacts dollar exchange rate further

As the US government shutdown moves into its third day, inevitably the crisis continues to have a negative impact on the strength of the US dollar.

Many other currencies had already started to strengthen against the dollar by the end of September, in anticipation of the Republican-led House of Representatives vote to refuse acceptance of the budget. However, the continuing failure of the American political parties to negotiate a settlement is likely to weaken confidence in the dollar further as the days go by, which will impact on forex trading in a number of currencies.

The stalemate is a result of the Republicans’ opposition to President Obama’s healthcare reforms, which have been nicknamed ‘Obamacare’. Many commentators believed, in advance of the vote, that the Government might back down and accept a Republican move to delay the reforms for a year, but no last-minute deal could be made and President Obama announced that he was not prepared to negotiate under threat.

In 1995-1996, the last time a similar shut-down took place, the conflict was also partly about Medicare, and involved a Democratic president (in this case Bill Clinton) and a Republican House of Representatives. The shut-down lasted a total of over twenty days. There have been several other budget shut-downs in American history, but resolution has usually tended to be achieved within a much shorter period.

As with any crisis affecting the US economy, the value of the US dollar has declined as investors have moved towards other currencies seen as resilient. Encouraging economic news from the United Kingdom, and signs of resolution in the Italian political struggle, have also helped European currencies, and boosted online trading volumes in the pound and euro.

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