The dollar fell to a one-week low against major currencies on Wednesday as the U.S. government faced a shutdown, which is expected to postpone the release of important employment data. Government funding lapsed at midnight in Washington following the inability of Republicans and Democrats to reach a last-minute interim agreement. Senate Republican Leader John Thune indicated that the chamber is set to revisit the House-passed measure for a vote on Wednesday. The Senate is scheduled to convene at 1400. The dollar index, which measures the currency against six counterparts including the euro and yen, fell by 0.2% to 97.635 as of 0521, and earlier reached a low of 97.584 for the first time since last Wednesday.
U.S. President Donald Trump cautioned congressional Democrats on Tuesday that permitting a federal government shutdown would enable his administration to implement “irreversible” measures, including the closure of programs significant to them. The U.S. Labor and Commerce departments announced that their statistics agencies would suspend data releases in the case of a partial shutdown. Friday’s scheduled nonfarm payrolls release is anticipated by markets as a crucial indicator in assessing the likelihood of a Federal Reserve interest rate cut at the end of this month. In the latest update, reports presented a mixed reading that exerted pressure on the dollar.
The report indicated that U.S. job openings experienced a slight increase in August, whereas hiring saw a decline, reflecting a softening labor market. In the absence of official data, greater attention will be directed towards private-sector economic indicators. The duration of any shutdown could be crucial for market dynamics, particularly with the Fed’s upcoming policy decision scheduled for October 29, which is still several weeks ahead. Market participants currently view a quarter-point cut as almost inevitable, with market-implied probabilities hovering around 95%, based on LSEG data.
“The USD will resume its fall today if the political discourse suggests an extended shutdown,” stated Joseph Capurso. “Additional weak U.S. economic data may further pressure the USD,” he noted. The euro increased by as much as 0.3% to $1.1767, marking its highest level since September 24. The dollar experienced a decline of 0.3%, reaching 147.46 for the first time since September 19, contributing to a three-day decrease of 1.2%. Market participants largely overlooked the publication of the Bank of Japan’s quarterly “tankan” corporate sentiment survey on Wednesday, despite central bank officials highlighting its significance in assessing the timing for a potential resumption of interest rate increases.