**Dollar Slips as Threat of US Government Shutdown Rises**
*Article based on original reporting by Alun John, Reuters. Expanded with additional analysis and information.*
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**Overview**
The US dollar saw a decline at the start of the week as the possibility of a federal government shutdown became increasingly real. Heightened political tensions in Washington, alongside recent shifts in global economic policies, have heightened uncertainty among investors and traders. This article examines the key drivers behind the dollar’s fluctuations, the global market response, potential future impacts, and provides broader context by referencing additional sources.
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**What’s Happening in Washington?**
Lawmakers in the United States are once again at an impasse over federal government funding. Unless a resolution is reached, the government may face a partial shutdown. These standoffs typically occur when Congress and the President cannot agree on annual appropriation bills to fund government operations and agencies.
– **Critical issues at play:**
– Budget allocations for federal agencies and programs
– Contentious disagreements over social and welfare spending
– Political bargaining on unrelated legislative priorities
– **Immediate deadline:**
– Federal agencies may run out of funding by the end of the week unless an agreement is passed.
– **Potential consequences:**
– Temporary shutdown of various government services
– Possible delays in government employee pay
– Reduced national economic output during the period of the shutdown
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**Impact on the Dollar**
During periods of political turmoil, the US dollar’s value often becomes volatile. Typically, the dollar can act as a safe-haven currency when there is global instability. However, domestic political turmoil, particularly the risk of a government shutdown, undermines this status.
– **Market response:**
– The Dollar Index (DXY), which tracks the dollar against a basket of major currencies, was down 0.2 percent, marking its lowest level in nearly three weeks.
– The euro, yen, and British pound all strengthened against the dollar in early Asian trading.
– Currency analysts note that the dollar’s weakness is event-driven, with short-term risks tied to the impasse in Washington.
– **Why does a shutdown impact the dollar?**
– Questions about the US government’s ability to function raise concerns over economic policy continuity.
– Potential delays in government data releases make market analysis more difficult, reducing clarity for traders.
– The disruption may slow domestic economic growth, a negative for the dollar.
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**Global Reaction**
Currency markets worldwide have responded to the evolving situation in the United States. Investors typically seek safe-haven assets during times of uncertainty, but a US government shutdown challenges the dollar’s traditional role as the ultimate safe haven.
– **Movement in other currencies:**
– The euro rose to $1.0930, approaching its highest level in three weeks.
– The Japanese yen strengthened slightly to 147.3 per dollar, recovering from recent declines.
– The British pound bounced back above $
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