Day one of US shutdown: Effects on dollar and gold

The suspension of the US federal government occurs when Congress fails to pass a funding bill before the start of the new fiscal year, which begins on October 1. During this period, government agencies halt their operations, social programs are suspended, and hundreds of thousands of federal employees are sent on unpaid leave.

Only departments responsible for public safety and property protection continue to operate. The suspension affects not only federal agencies but also state authorities and local administrations. Typically, during a shutdown, national parks and museums close, access to medical services becomes limited, and waiting times on social security hotlines increase.

"It usually lasts from a few days to two weeks, as eventually Democrats and Republicans find a compromise," said economist Borys Kushniruk.

"A shutdown in the US is a tradition when the two parties cannot agree on the budget. They drive the situation to the point where no decision is made, and a shutdown is declared," the expert commented to RBC-Ukraine.

As a rule, shutdown situations end in November. "There have never been cases in America where the budget was not adopted at all," noted economic expert Oleh Pendzin.

What are the political interests of the ruling parties

Government funding ceased on September 30, when the Senate rejected two bills proposed by both Democrats and Republicans that were aimed at preventing a shutdown.

This is already the 21st government shutdown in US history and the third during Donald Trump’s presidency. This time, around 750,000 federal employees may be sent on unpaid leave.

Earlier, Republicans in the House of Representatives passed a bill to temporarily fund the government until November 21. For it to pass in the Senate, 60 votes were needed, including some from Democrats, but the bill did not receive support, notes The Guardian.

In response, Democrats proposed their own version of a short-term budget, insisting on continuing subsidies for nearly 20 million Americans to purchase health insurance under Obamacare and on canceling $1 trillion in Medicaid cuts.

In the coming days, the Senate will vote again on the budget, but the process may drag on. Republicans and Donald Trump are counting on the consequences of the shutdown eventually putting pressure on Democrats and forcing them to make concessions.

As for Trump himself, he is not concerned about the suspension of the US government. "I don’t worry about that, because people that are smart see what’s happening. The Democrats are deranged," he said in a comment to Politico.

How this will affect the dollar and gold

The government shutdown threatens to become an additional factor of instability for the US economy, which is already experiencing rising inflation and a weakening labor market. However, past shutdowns have shown that the overall impact on the economy is limited.

The longest shutdown in history (35 days in the winter of 2018–2019) reduced production by only 0.4%, according to NBC.

The scale of losses depends on the number of employees sent on unpaid leave. For example, in 2013, their share was 40% of all federal workers. If a similar situation occurs, US GDP growth could slow by approximately 0.15% per week, economists note.

The political crisis has already affected the currency market. The dollar index, which measures its value against six major world currencies (euro, yen, pound sterling, Canadian dollar, Swedish krona, and Swiss franc), fell by 0.2% to 97.6, reports Reuters.

Amid the weakening dollar, global gold prices have reached a historic high. Demand for the "safe haven" is pushing quotes up: the spot price of gold rose to a record $3,896 per ounce.

However, these processes are short-term and are expected to return to normal once the shutdown ends, emphasized Kushniruk.

"The impact of a shutdown on the markets is temporary: stocks and government bonds recover immediately after the budget decision is made," he added.

Experts agree that Ukrainians need not worry that the shutdown will affect US assistance to Ukraine or cause the dollar to collapse.

"Today, America does not provide any financial aid to Ukraine. As for weapons, their sale is handled by private American companies — it’s purely a commercial matter, unrelated to shutdowns," Pendzin stressed.

On September 28, Donald Trump met with congressional leaders to discuss the risk of a government shutdown.

On September 30, US Vice President J.D. Vance predicted a shutdown, while blaming the Democrats and saying they "do not want to take the right steps."

For more on the history of US shutdowns and their political significance, see the RBC-Ukraine report.