The dollar index fell 0.22% to 97.90 on Monday, extending losses for a second session as concerns over a potential US government shutdown weighed on the greenback.
With Congress struggling to pass a funding bill before the fiscal year ends on Tuesday, markets are bracing for a possible shutdown that could impact the release of key economic data, including the non-farm payrolls report.
A government shutdown would likely hamper the market’s ability to correctly price the course of the Federal Reserve’s easing cycle.
According to Bob Savage, head of markets macro strategy at BNY, private sources of data could fill some small part of the gap.
The shutdown would also have implications for an already sluggish labor market.
The euro rose 0.25% to $1.1729, while sterling gained 0.34% to $1.3445. The yen outperformed the euro, with the dollar down 0.6% to 148.67.
Mohit Kumar, economist at Jefferies, favors a short position in the dollar/yen, expecting more rate hikes by the Bank of Japan.
Investors are pricing in 40 basis points of Fed easing by December and a total of 110 basis points by the end of 2026.
The Trump administration’s request to allow President Donald Trump to fire Federal Reserve Governor Lisa Cook has also raised concerns about the Fed’s independence and its potential impact on the dollar.
The Aussie rose 0.35% to $0.6571, ahead of the Reserve Bank of Australia’s rate decision on Tuesday, which is expected to keep rates steady.
The war in Ukraine and potential increased military spending are also on investors’ radars, influencing market sentiment.
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