Guest Article:Why the Markets Remain Hostage to the U.S. Government Shut-down?

Why the Markets Remain Hostage to the U.S. Government Shut

As the government shut-down enters its third week, its impact is already creating widespread uncertainty and concern among U.S. citizens. Economists are predicting that the influence of the shut-down is set to become even stronger in the coming weeks, however, as government funding continues to dwindle indefinitely.

So while the federal courts are currently still functioning and benefits payments are still being made, it is estimated that the existing resources will only allow this to continue for another 2 to 3 weeks. After this time, the U.S. will face defaulting on its budget deficit and entering a prolonged period of austerity.

The Government Shut-down and the Forex Market: The Ultimate Stalemate

As the Washington stalemate continues, the financial markets are also beginning to feel the effect. This is only to be expected, especially in volatile markets that remain susceptible to social, political and economic trends. Take the forex market, for example, which has already seen diminished trading volumes and a distinctly risk averse approach to investment since the shut-down began just 13 days ago. The latest development in the crisis only served to heighten the sense of dread and anxiety, as President Obama reportedly refused to deal directly with the Republicans in an attempt to resolve the stalemate at the end of next week.

While some may remember how the threat of the fiscal cliff failed to undermine the financial markets, it is important to note that the current circumstances are entirely different. To begin with, the majority of the nations' economists felt that it was extremely unlikely that the U.S. would be allowed to plunge into the oblivion, while those on Wall Street were already battle hardened in the wake of the Great Recession. We are already in the midst of a government shut-down in this instance, however, while the nation had recently experienced significant levels of growth and regeneration.

The Early Indicators and the Bottom Line for Forex Traders

So with the financial markets in the grip of an impending fiscal crisis and a resolution seemingly further away than ever, are there any immediate signs of danger on the foreign exchange? Well the U.S. Dollar (USD) has followed up weeks of constant price fluctuation by dropping sharply against the Japanese Yen (JPY) and New Zealand Dollar (NZD). The initial uncertainty surrounding the government shut-down also appeared to take its toll on trading volumes, with the forex market decidedly quiet as investors sought further news concerning negotiations between the White House and Democratic party members.

While austerity, uncertainty and speculation are common features of the contemporary forex market, traders are currently facing a unique set of fiscal circumstances. Gripped by the first government shut-down in more than 17 years and hindered by an increasingly fragile global economy, it is little wonder that they are looking to adopt a risk averse approach and consolidate their position until a resolution is released. With many following the latest news and breaking trends through online brokerage firms such as Alpari, the sense of anticipation on the market is set to reach a peak in the week ahead.

Adrew Scarre