**Title: USD Slips Amid U.S. Government Shutdown Concerns, CAD Strengthens On Firm Oil Prices**
*By MarketPulse – A Forex Analysis Editorial | Original Author: Kenny Fisher*
The U.S. dollar came under pressure in midweek trading as investors reacted to growing concerns over a potential U.S. government shutdown, while the Canadian dollar showed resilience buoyed by firm oil prices. Increased political uncertainty, a noticeably dovish tone from Fed officials, and mixed economic data have contributed to recent shifts in forex momentum, leading to a volatile session for North American currencies.
This article explores the key drivers behind the USD downturn, the factors supporting the Canadian dollar, and the broader implications for currency markets across North America.
—
### 1. U.S. Dollar Slumps on Shutdown Fear and Yield Drop
The U.S. dollar encountered notable selling pressure due to heightened fears of a looming U.S. government shutdown. As Congress hurdled towards a funding deadline, investors began shifting away from the greenback in favor of safer assets like Japanese yen and Swiss franc.
– **Shutdown Concerns**: Lawmakers faced difficulty reaching a consensus on key spending bills. If funding lapses, non-essential government operations could cease, affecting economic data reporting and lowering short-term growth estimates. This led investors to price in additional uncertainty.
– **Investor Sentiment**: The resulting risk aversion pushed the dollar index (DXY), which tracks the USD against a basket of six major currencies, lower on the day.
– **Downward Movement**: The USD declined across several key currency pairs, notably:
– EUR/USD climbed back above 1.0500
– GBP/USD advanced past 1.2150
– USD/JPY stalled near 148.75 as traders sought safety in the yen
Economic policy paralysis has historically undermined the dollar. During similar crises in previous years (notably 2013 and 2018), markets became more volatile, bond yields dipped, and the greenback lost steam. A comparable reaction played out this week.
—
### 2. Federal Reserve Reinforces Dovish Tone
While inflation remains above target levels, recent commentary by several Federal Reserve members suggests divergent views inside the U.S. central bank about further tightening.
– **Minneapolis Fed President Neel Kashkari** noted inflation is still too high but emphasized patience may be required to assess the lagging impact of previous hikes.
– **Chicago Fed President Austan Goolsbee** cautioned against over-tightening, following signs that economic growth may be softening.
– **Rate Expectations**: The CME FedWatch Tool showed weakening odds of another interest rate hike in 2023, with a slight increase in bets that the peak rate has already been reached.
– This softer rhetoric contributed to falling U.S. Treasury yields.
– The benchmark 10-year yield slipped from multi-year highs, giving the USD even less support on the interest-rate differential front.
—
### 3. Economic Data Dim the Dollar’s Appeal
Several data points released during the week added to the USD’s bearish tone.
– **Durable Goods Orders**: August durable goods orders bounced back with a 0.2% gain, narrowly beating expectations. However, core orders (excluding transportation) remained underwhelming.
– **Consumer Confidence**: The Conference Board Consumer Confidence Index fell more than expected to 103.0 from a revised 108.7, signaling worries about an economic slowdown.
– **Housing Data**: New home sales dropped by 8.7% in August, as higher mortgage rates discouraged homebuyers. This marked the lowest reading since March.
– Mortgage rates surged past 7% for 30-year fixed loans, further cooling the housing sector.
All this comes as inflation remains sticky. The Fed’s preferred gauge, the Core Personal Consumption Expenditures (PCE) Price Index, is due later this week and may provide fresh insight into the Fed’s
Read more on USD/CAD trading.