U.S. Representative Matt Gaetz, Republican of Florida, made an off the cuff statement today to reporters about the U.S. dollar when asked about efforts to remove U.S. Speaker of the House Kevin McCarthy, Republican of California, from his leadership position. Mr Gaetz has been taking issue with Speaker McCarthy’s apparent temporary alliance with Democrats after the U.S. House passed a 45-day spending measure.
This means that the House will be addressing the issue of funding the government about two weeks before Americans sit around the table to eat turkey and hopefully not ruin familial relationships during their discussion of fiscal policy.
Mr Gaetz believes that the measure, along with the threat of inflation and recession, sends the wrong message about the value of the U.S. currency.
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While a myriad of commentators have been dumping praise on American consumers regarding their resilience, the Federal Reserve has made no secret about the need to cool down the American economy if the inflation target of two percent is to be met.
For example, in an interview with Bloomberg, Federal Reserve Bank of Richmond president Tom Barkin said that the U.S. economy is remaining resilient even at higher rates. The housing market is reportedly strong with housing prices barely showing any effect in the face of higher interest rates. Businesses are being cautious about laying off workers.
On the flip side, Bloomberg reports that growth is expected to be subdued given the narrative of interest rates staying higher for longer. Long term profitability is expected to take a hit, according to Bloomberg reporting, with markets absorbing hawkish fed speak and yields climbing.
The dollar appears to me to be moving on this narrative of higher interest rates. According to data from x-rates.com, between 9:30 am and 1:00 pm, the EUR/USD moved from 1.0524 to 1.0495 by 11:00 am EST. By 1:00 pm, EST, the EUR/USD fell further to 1.0489.
The same signs of dollar strengthening are seen in the GBP/USD; AUD/USD; USD/JPY; and USD/CHF.
| Time | EUR/USD | GBP/USD | AUD/USD | USD/JPY | USD/CHF |
| 9:30 am | 1.0524 | 1.2143 | 0.6389 | 149.8073 | 0.9166 |
| 11:00 am | 1.0995 | 1.2120 | 0.6371 | 149.8461 | 0.9192 |
| 1:00 pm | 1.0489 | 1.2110 | 0.6365 | 149.8257 | 0.9185 |
I can’t conclude with any certainty that the Washington budget antics are contributing to today’s price movement. What’s happening over fiscal spending may just be a bump in the certainty-uncertainty spectrum. Congress long abdicated its control over the U.S. currency. Other than authorizing the debt that the Treasury issues to fuel bond markets, budget squabbles provide very, very brief moments of entertainment.
Alton Drew
2 October 2023
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