US: Increasing political uncertainty could cast a shadow over the USD's near-term outlook – Crédit Agricole

Economists at Crédit Agricole highlight uncertainties surrounding a potential US government shutdown and its implications for the USD. 

Some relief and support to the USD if a resolution to prevent the shutdown is reached before the deadline

The expectation is that a resolution will be reached before the 1 October deadline, possibly by pushing the spending bill to early December. Post this deadline, non-essential federal agencies will cease their operations. However, increasing uncertainty is being introduced by the Freedom Caucus, who have indicated that they might vote against any interim solutions. 

If a resolution to prevent the shutdown is reached before the deadline, it could potentially offer some relief and support to the USD. On the other hand, the increasing political uncertainty brought on by parties like the Freedom Caucus could cast a shadow over the USD's near-term outlook. If market participants believe that a shutdown is becoming more likely or if the situation turns more contentious, we could see heightened volatility and possibly a weaker USD in the short term.