USD under pressure from looming US government shutdown

The Dollar is under pressure amid the looming threat of a first US government shutdown in almost seven years. Investors won’t be losing too much sleep just yet, provided that they view the closure as merely a brief disruption, rather than an elongated cessation in federal activities. The most immediate impact on markets would be the delay to official US data releases, including Friday’s all-important September payrolls report. While this is far from ideal, it would not exactly be the end of the world.

A prolonged impasse that drags on for more than a few days could see heightened jitters and an increase in market volatility. Safe-haven currencies, notably the yen and franc, would see strong demand, while high beta assets could lose ground. Similar to 2018, an extended standoff may weaken the dollar should markets bet that the shutdown could harm the US economy and prompt a faster pace of Federal Reserve interest rate cuts, albeit this remains a distant scenario for now.