Dollar bulls, beware: a potential U.S. government shutdown may undermine the currency, according to Barclays Plc.
While the bank expects lawmakers to reach a deal to keep the federal government from grinding to a halt, it says a potential stalemate still poses a risk to financial markets. The third-ranking Senate Republican, John Thune of South Dakota, told reporters Tuesday in Washington that he’s confident Congress will resolve the impasse, which is centered around funding for Planned Parenthood.
Current government funding is set to end Sept. 30. The Bloomberg Dollar Spot Index dropped to an almost eight-month low during the 16-day shutdown in October 2013.
Another halt would reduce government spending and economic growth, and make the Federal Reserve more reluctant to raise interest rates, Michael Gapen, head of U.S. economics research at Barclays, said in an interview.
“That would suggest the dollar would be weaker,” he said.
The greenback rose 0.6 percent to $1.1122 per euro as of 2:13 p.m. in New York, and is up 0.8 percent this month.
A shutdown would “suppress activity, they suppress investment, they weigh on business and consumer sentiment,” Gapen said earlier Tuesday in a media presentation at the bank’s office in New York. “So the longer it goes on, it has a noticeable economic impact.”
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