US Dollar Index Hits 10-Month High Amid Government Spending Cuts Discussions

September 26, 2023 22:06

The last week of September has already kicked off with global markets coming to terms with last week’s interest rate decisions.

In the US, government funding is one more time a topic of debate between the Republicans and the Democrats. However, a Bloomberg report suggested that the two sides are closing in on a deal to avert a potential shutdown. In the meantime, the US dollar hit a 10-month high against a basket of currencies.

The British pound hit a 6-month low against the US dollar on Tuesday as the Bank of England’s pause related to hiking rates and worse than expected PMI figures published on Friday put a strain on the currency’s rise.

US: Government Funding Under Question

As spending laws are due to expire on the last day of September, a government shutdown due to lack of funding looms once again. While the clock is ticking, a group of Republican senators has vowed to balance the government budget, making a government shutdown a possibility as they disagree with House Speaker Kevin McCarthy, who seeks an agreement between his party and the Democrats.

A government shutdown would mean paused paychecks for U.S. federal employees and closing an array of government services. Investors worry about what a shutdown would mean for the fourth fiscal quarter in an already fragile stock market.

Japanese Government To Prepare Economy Support Package

Japanese Prime Minister Fumio Kishida revealed on Monday that he would instruct the country’s cabinet to prepare an economy support package. Kishida said in his remarks, “the aim is to move from cost cut-led economy to one with active investments. The economic package aims to protect people's lives from rising prices. Private consumption, capex lack strength, being unstable.”

The Japanese premier didn’t neglect to refer to the currency market, reiterating that it should move stable while reflecting fundamentals and adding that his government would continue to monitor forex moves closely with high sense of urgency as excessive forex moves would be undesirable.

Lagarde: Further Weakness In Third Quarter A Possibility

The European Central Bank’s (ECB) head, Christine Lagarde, said that economic indicators suggest that further weakness could be recorded in the third quarter of the year. In her remarks, Lagarde noted: “Lower demand for euro area exports and the impact of tight financing conditions are dampening growth, including through lower residential and business investment. The services sector, which had been resilient until recently, is now also weakening. The labour market has so far remained resilient despite the slowing economy, with the unemployment rate staying at its historical low of 6.4% in July. But while employment grew by 0.2% in the second quarter, job creation in the services sector is moderating and overall momentum is slowing.”

On Monday, the euro dropped to the lowest level recorded in the last six months against the US dollar.

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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or solicitation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.

Miltos Skemperis
Miltos Skemperis Financial Content Writer

Miltos Skemperis’ background is in journalism and business management. He has worked as a reporter on various TV news channels and newspapers. Miltos has been working as a financial content writer for the last seven years.