**US Dollar Price Forecast: Falls as Government Shutdown Extends; GBP/USD and EUR/USD Analysis**
*By Christopher Lewis, Based on Reporting from FX Empire*
The US Dollar experienced notable declines recently, hit hard by ongoing uncertainty surrounding the US government shutdown and its broader economic consequences. The reverberations of a prolonged shutdown threaten to impact markets, policy direction, and investor confidence, putting renewed pressure on the greenback against major currency pairs such as the British Pound (GBP/USD) and the Euro (EUR/USD). In this report, drawing insights from Christopher Lewis’s FX Empire analysis, we dissect the drivers behind the current market sentiment and provide a detailed technical and fundamental outlook for the US Dollar and its key forex pairs.
## The Government Shutdown’s Rippling Impact
The partial suspension of US federal government operations has become a major risk factor for financial markets. As negotiations drag on and the shutdown’s resolution remains elusive, market participants weigh the implications for economic momentum, data releases, and Federal Reserve policy.
### Key Risks from the Shutdown
– Delayed release of key economic data, leaving policymakers and traders with limited visibility on the US economy’s health.
– Direct negative impact on GDP growth due to furloughed workers and reduced government spending.
– Increased financial market volatility as traders shift focus to risk aversion.
– Threat to consumer and business confidence if the shutdown extends further into the quarter.
– Possible complications for timely monetary policy decisions by the Federal Reserve.
## Dollar Weakness: A Broader Perspective
The US Dollar Index (DXY), which tracks the currency against a basket of its peers, has faced continued downward momentum. A subdued economic outlook, combined with political uncertainty, has forced investors to trim their long-USD positions.
### Factors Underlying the Recent Drop
– Rising concerns that prolonged political deadlock could harm US creditworthiness.
– Anticipation that weaker US data, or the absence of data altogether, might restrain the Federal Reserve from aggressive rate hikes or even prompt earlier-than-expected rate cuts.
– Relative improvement in prospects for other major economies such as the Eurozone and United Kingdom, whose currencies have gained ground against the Dollar.
– Safe-haven flows into assets like gold and the Japanese yen, which are viewed as alternatives during US-centric uncertainty.
## GBP/USD: Sterling Pushes Higher
The British Pound has taken advantage of the Dollar’s woes, with the GBP/USD pair bouncing back from prior lows. This recovery is underpinned not only by Dollar weakness but also by stabilizing UK economic indicators and improving sentiment around Brexit negotiations.
### GBP/USD Key Technical Levels
– Initial resistance near the 1.2750 area, where previous rallies have faltered.
– A break above 1.2850 could open up further upside towards the 1.3000 psychological level.
– Support lies at 1.2650, with further downside risk capped near 1.2550.
### Sterling Fundamentals
– UK economic data has shown resilience, particularly in employment and retail sales, despite lingering Brexit-related concerns.
– The Bank of England maintains a cautious hawkish stance, signaling that further tightening is possible if inflationary pressures persist.
– Political risks remain, but the UK’s fiscal position appears more stable compared to US dysfunction.
### Trading Considerations for GBP/USD
– Short-term uptrend gaining traction, favored by momentum traders.
– Watch for potential pullbacks toward support to gauge buying interest in the pair.
– A surprise resolution to the US shutdown could spark volatility, but current momentum points toward further Sterling strength in the near term.
## EUR/USD: Euro Bounces from Key Levels
The Euro has also benefited significantly from Dollar retreat, as EUR/USD retraces higher off recent support. The currency pair’s fortunes are closely tied to broader risk sentiment and economic developments in the Eurozone.
### EUR/USD Technical Analysis
– Immediate resistance at 1.0900, with any breach likely targeting the 1.1000 region.
– Support is found
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