**US Dollar Price Forecast: Falls as Government Shutdown Extends, GBP/USD and EUR/USD in Focus**
*Based on analysis by Christopher Lewis, originally published at FXEmpire*
The US dollar faced renewed selling pressure as the specter of an extended government shutdown in Washington continued to fuel market caution on Wednesday. With the stalemate in Congress likely to drag on, broad risk aversion impacted currency flows, notably pushing the greenback lower against key rivals including the British pound and the euro. This article provides an in-depth outlook on the US dollar’s trajectory, assesses the potential impact of the US government shutdown, and analyzes the technical and fundamental drivers shaping the GBP/USD and EUR/USD pairs.
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**Government Shutdown: Drag on the US Dollar**
The US government shutdown has emerged as a key risk to global financial markets. As negotiations between Democrats and Republicans remain deadlocked over federal funding, uncertainty over the duration and consequences of the shutdown weighs heavily on US assets. The ongoing budget impasse not only threatens vital government operations but also brings into question the stability and reliability of the US economy.
– **Investor Sentiment:** A prolonged shutdown tends to undermine confidence in US policymaking, translating into a risk-off mood that historically weakens the dollar.
– **Economic Data Disruptions:** Shutdowns typically delay or curtail the release of important economic figures, making it difficult for investors to assess the real state of the US economy.
– **Federal Reserve Policy Implications:** The lack of fresh data could complicate the Federal Reserve’s decision-making process, potentially leading it to adopt a more cautious or dovish stance.
– **Global Risk Perspective:** The US dollar, often seen as a safe-haven, can paradoxically suffer during domestic systemic shocks if investors question the reliability of US governance.
The direct impact has been a steady decline in the value of the dollar against its major peers, reflected in the GBP/USD and EUR/USD exchange rates.
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**GBP/USD: Pound Strengthens Despite Uncertainties**
Against the backdrop of US political turmoil, the British pound capitalized on dollar weakness. While the UK faces its own set of economic challenges, including slowing growth and Brexit aftershocks, sterling managed to edge higher amid the dollar’s decline.
**Key Drivers for GBP/USD:**
– **Relative Resilience:** The UK avoided a technical recession in recent economic reports, offering the pound some support despite headwinds.
– **Bank of England Policy:** With the BOE maintaining a cautious hawkish tilt due to persistent inflation, rate differentials now play a balancing role against the Federal Reserve’s uncertainty.
– **Technical Factors:** Bullish momentum in GBP/USD has been building as the pair breaches key resistance levels.
**Technical Outlook for GBP/USD:**
– **Immediate Resistance:** 1.2650 zone, potentially expanding toward 1.2750 if positive momentum continues.
– **Support Levels:** Key support stands at 1.2500, followed by 1.2380. Breaking below these levels would expose the pair to deeper retracement if bearish sentiment returns.
– **Moving Averages:** The pair is trading above its 50-day and 200-day simple moving averages, indicating strong medium-term support.
– **RSI Reading:** Momentum indicators suggest the pair is not yet overbought, allowing room for further upside if fundamentals continue to favor sterling.
**Summary View:**
As long as US political uncertainty persists and the Bank of England maintains a vigilant approach to inflation, GBP/USD could continue its upward trajectory, targeting the 1.2700 area in the short term.
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**EUR/USD: Euro Recovers Despite Eurozone Headwinds**
The euro also capitalized on US dollar weakness, albeit restrained by its own domestic challenges, primarily subdued economic growth within the euro area and ongoing German economic underperformance. Nevertheless, the single currency managed to find its footing.
**Core Factors Influencing EUR/USD:**
– **ECB Messaging:** The European Central Bank has signaled its intent to
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