The U.S. economy entered a critical period this week, as Barack Obama finally signed a bill to authorise the much anticipated sequester cuts. With more than $85 million to be cut from the public spending budget, there is a great deal of apprehension among American households, business owners and even Wall Street traders.
While many economists predicted that this would have a detrimental impact on those who trade fx and stocks, however, it appears as though investors are bracing themselves for potential gains. Both the U.S. Dollar and stocks have edged higher in the last week, as strong economic figures and manufacturing gains have combined to help offset the immediate impact of budget cuts.
The Long Term Portents for the U.S. Economy
While the U.S. economy has become extremely well versed in the art of recovery, its perpetual resilience continues to defy financial experts. Given that the federal government have outwardly fought hard to resist budget cuts by implementing several temporary fiscal measures, it would be reasonable to assume that their impact would be immediate and potentially devastating. This has not proven to be the case, however, at least in the immediate aftermath of the bills inauguration.
The weeks to follow may tell a different story, however, especially once the proposed cull of public sector job comes to fruition. With the potential for more than 1 million workers to lose their income and thousands more staff facing significant pay cuts, there is the chance that the economy could enter a significant decline during the second financial quarter. Additional spending cuts on educational programs and welfare will take their toll over a longer period of time, and these may well cause a gradual depreciation of sentiment among American citizens.
The Prospects for the Contrary Forex Market
While the economic condition is likely to worsen before it improves, however, it is fair to say that the implementation of sequester costs offered a fascinating insight into the contrary nature of the forex market. While it would be reasonable to presume that the value of the U.S. Dollar would plummet in line with fading economic sentiment, it has instead rebounded and continued its prolonged ascent. Trading volumes within the forex market have also remained unchanged, which suggests that corporate institutions and independent investors are unmoved by the drastic budget cuts.
While the forex market may be contrary in its nature, however, it is not immune to continued periods of economic hardship. Should the initial resilience of the U.S. economy find itself overwhelmed once the sequester cuts begin to take their toll, even experienced Wall Street traders may be forced to consider embracing a more risk averse investment philosophy. While it is easy to remain positive and bold during short term periods of hardship, the prospect of another recession is bound to influence both trading volume and the underlying value of the nation’s currency.
Although it is clear that the years following the global recession have forced traders to develop greater levels of resilience and determinism, this only applies to short term fluctuations and economic shifts. In instances where the U.S. economy is driven to the brink of recession, however, forex and financial market traders will have to adapt their strategies and minimise the risks that they face on a daily basis.