The future US president will appoint Elon Musk (together with Vivek Ramaswamy) to head a new office for government efficiency (independent of the Office of Management and Budget). Mr. Musk had announced during the election campaign that he would cut the US federal government's spending by $2 trillion (i.e. by almost a third). It doesn't take a rocket scientist to realize that this would have catastrophic economic consequences for the US economy, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.
USD consequences of an expansive monetary policy reaction to prevail
“Just recently, Mr. Musk celebrated the takeover of a media company very publicly, demonstrating that he does not believe in a gradual, cautious approach. The optimist might argue that Musk should behave more cautiously in view of the fact that it is now a serious matter for a country of 335 million people. But I don't trust him to take that intellectual step. Perhaps it is precisely this point that distinguishes the Westphalian pessimist from the currently optimistic currency market.”
“Furthermore, one could argue that the proposals that Musk and Ramaswamy will develop will only be proposals. The US President and the US Congress stand before implementation in actual policy. But one might wonder why such an agency is being set up at all if its proposals (which Musk and Ramaswamy will certainly not keep to themselves) will not be implemented. In this case, the president would appear to be indecisive and establishment-like – exactly what he does not want to be.”
“Incidentally, it would be quite clever to use such a radical austerity program to create a USD-positive argument. After all, this would significantly reduce the capital requirements of the US Treasury and thus of the US economy as a whole. US T-Notes would become scarce again and thus expensive. However, I think that the USD consequences of an inevitable expansive monetary policy reaction would likely prevail, at least initially.”
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD treads water just above 1.0400 post-US data
Another sign of the good health of the US economy came in response to firm flash US Manufacturing and Services PMIs, which in turn reinforced further the already strong performance of the US Dollar, relegating EUR/USD to the 1.0400 neighbourhood on Friday.
GBP/USD remains depressed near 1.2520 on stronger Dollar
Poor results from the UK docket kept the British pound on the back foot on Thursday, hovering around the low-1.2500s in a context of generalized weakness in the risk-linked galaxy vs. another outstanding day in the Greenback.
Gold keeps the bid bias unchanged near $2,700
Persistent safe haven demand continues to prop up the march north in Gold prices so far on Friday, hitting new two-week tops past the key $2,700 mark per troy ounce despite extra strength in the Greenback and mixed US yields.
Geopolitics back on the radar
Rising tensions between Russia and Ukraine caused renewed unease in the markets this week. Putin signed an amendment to Russian nuclear doctrine, which allows Russia to use nuclear weapons for retaliating against strikes carried out with conventional weapons.
Eurozone PMI sounds the alarm about growth once more
The composite PMI dropped from 50 to 48.1, once more stressing growth concerns for the eurozone. Hard data has actually come in better than expected recently – so ahead of the December meeting, the ECB has to figure out whether this is the PMI crying wolf or whether it should take this signal seriously. We think it’s the latter.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.