The dollar is heading for its longest losing streak in a month as the US entered its first government shutdown in nearly seven years.
The Bloomberg Dollar Spot Index slipped for a fourth day, down 0.2% to a one-week low. The greenback weakened against all of its Group-of-10 peers, with the yen leading gains to climb to a two-week high.
History shows shutdowns typically weigh on the greenback, a pattern echoed in options markets. Risk reversals — which measure the gap in demand between bullish and bearish trades — are signaling further downside risks over the next month.
Any fall in equities and a rally in Treasuries may be modest but “the one market where we would not look to fade the market move is FX,” said Mohit Kumar, chief European strategist at Jefferies, who expects dollar weakness to persist.
The duration of the shutdown matters, as the longer it lasts the greater the pressure on the dollar. The greenback has already slumped this year to the lowest since 2022 as unpredictable policy making under President Donald Trump, escalating deficits and pressure on the Federal Reserve’s independence worry investors.
“If the shutdown lasts a few weeks again, the dynamics are likely to add noise to already difficult to interpret labor market data, which will also affect the Fed’s decision-making process,” said Rogier Quaedvlieg, senior US economist at ABN Amro Bank NV.
Economic data — such as US nonfarm payrolls scheduled for Friday — may now be delayed. Money markets are pricing in 42 basis points of easing by the Fed by year-end, compared to 37 basis points a week ago.
