Title: U.S. Dollar Retreats Amid Government Shutdown Concerns and Dovish Fed Bets
Source: Reuters
Author: Gertrude Chavez-Dreyfuss
Link: https://www.tradingview.com/news/reuters.com,2025:newsml_L2N3VK0RN:0-us-dollar-posts-multi-week-losses-on-fears-of-prolonged-shutdown/
The U.S. dollar recently posted its most significant weekly losses in several months as traders increasingly bet on a sustained pause—or even a potential pivot—by the Federal Reserve in its monetary policy stance. Ongoing fears surrounding a prolonged U.S. government shutdown compounded the dollar’s weakness, adding to concerns about the country’s economic and political stability in the coming weeks.
Currency markets entered the final trading weekend of September with marked volatility, as investors weighed a confluence of risk factors. Chief among these was the looming risk of a U.S. government shutdown, which appeared inevitable unless Capitol Hill delivered a last-minute legislative breakthrough. The budget impasse in Washington and escalating fiscal uncertainty led global investors to reassess their bets on the greenback, which has benefited this year from elevated interest rates and broader geopolitical instability.
Key Highlights:
– The U.S. dollar declined for the first time in seven weeks, ending a sustained rally that previously saw it hit historic highs against multiple major currencies.
– The looming risk of a federal government shutdown, combined with signs of a cooling U.S. economy, prompted a broad sell-off of the dollar across global forex markets.
– Market participants are pricing in a higher probability of interest rate cuts by the Federal Reserve in mid-to-late 2024, reducing the dollar’s yield-based appeal.
Dollar Slides on Shutdown Threat and Fed Signals
The dollar index, which tracks the U.S. currency against a basket of six major rivals, posted a 0.6% weekly loss — the largest since July. This reversal comes on the back of an extended rally that had previously seen the index break past 106 for the first time since November 2022.
Several factors contributed to the greenback’s pullback:
– Dovish commentary from Federal Reserve policymakers suggested that the U.S. central bank may be close to halting its tightening cycle.
– A recent string of economic data showing signs of an economic slowdown led many traders to question whether the Fed can continue lifting borrowing costs without triggering a recession.
– The ongoing budget dispute in Washington raised alarm across markets over the federal government’s capability to fund its operations, undermining confidence in U.S. fiscal management.
A combination of these domestic headwinds caused traders to unwind long dollar positions, thereby boosting other major currencies.
Government Shutdown Fears Deepen
As of the article’s publication date, the U.S. Congress was edging closer to failing to pass a fiscal funding agreement, putting the federal government on the brink of its fourth shutdown in a decade. The effects of such a political standstill could be far-reaching for financial markets, particularly for dollar-denominated assets.
A prolonged shutdown could:
– Impair critical government operations, including key statistics releases from economic agencies such as the Bureau of Economic Analysis (BEA) and Census Bureau.
– Disrupt fiscal payments and reduce short-term spending, impacting consumer confidence and GDP growth.
– Lead credit rating agencies to reconsider the U.S. government’s sovereign rating, as witnessed during previous shutdowns.
The dollar traditionally benefits during times of global uncertainty, but this time the risks are domestic and systemic. As leadership in Washington fails to coalesce around a temporary funding measure, the global status of the dollar as a safe-haven asset could face renewed scrutiny.
Fed Outlook Shifts Toward Dovish
At the heart of the dollar’s recent performance shift was an evolving interpretation of the Federal Reserve’s trajectory. While the central bank kept its policy rate steady during its September meeting, language in the post-meeting statement and follow-up remarks from Fed Chair Jerome Powell hinted at growing caution regarding the U
Read more on EUR/USD trading.