Dollar Drops As U.S. Government Shuts Down

(RTTNews) - The U.S Dollar dropped against major currencies during the week ended October 3 amidst the first shutdown of the U.S. government in more than 6 years. The greenback's slide was also attributed to traders assessing the potential for more interest rate cuts by the Federal Reserve.

The greenback declined against the euro, the British pound, the Australian Dollar, the Japanese yen. the Swedish krona as well as the Swiss franc but held firm against the Canadian dollar. The Dollar Index which measures the Dollar's strength against a basket of 6 currencies dropped close to half a percent during the past week.

The United States government shut down as of October 1 as lawmakers failed to pass funding laws for executive agencies for fiscal year 2026 on time. The previous shutdown happened between December 2018 and January 2019. The potential impact of the government shutdown on crucial federal services and programs, the costs imposed on the federal agencies as well as fears of a prolonged shutdown weighed heavily on the dollar.

Concerns about the labor market that has been driving Fed rate cut expectations were again in the spotlight amidst suspension of key economic data releases, including the highly anticipated September nonfarm payrolls report, scheduled for Friday.

Data released by the U.S. Bureau of Labor Statistics on Tuesday showed job openings increasing to 7.23 million in August, from an upwardly revised 7.21 million reading in July, in line with market expectations.

ADP data released on Wednesday showed private businesses in the U.S. cutting 32 thousand jobs in September versus a loss of 3 thousand in August and defying forecasts of a 50 thousand gain. The data revealed the steepest job decline since March 2023 and the first time since 2020 that the private sector has cut jobs for two consecutive months, boosting rate cut expectations and weighing on the dollar. Data released during the week that revealed a lower-than-expected level of services PMI in the month of September also abetted the greenback's slippage. Losses were limited by the higher-than-expected level of manufacturing PMI in September.

From the level of 98.15 on September 26, the Dollar Index slipped 0.44 percent in a week's time. The Index which had touched a weekly high of 98.18 on Monday dropped to the weekly low of 97.46 by Wednesday in the aftermath of federal government shutdown and disappointing ADP data. The Index however recovered and closed the week's trading at 97.72.

Amidst the dollar's weakness triggered by the federal shutdown and rate cut hopes, the EUR/USD pair rallied 0.35 percent during the week ended October 3. From the weekly high of 1.1779 touched on Wednesday, the pair dropped to a low of 1.1683 on Thursday. The pair eventually closed at 1.1743, versus 1.1702 a week earlier. Data released during the week revealed inflation rising on expected lines as well as unemployment increasing more than expected.

The British pound also gained against the greenback during the week ended October 3. The GBP/USD pair which had closed at 1.3405 on September 26 gained 0.56 percent during the week ended October 3 to close at 1.3480. The weekly trading range was wider, between a low of 1.3394 recorded on Monday and a high of 1.3529 recorded on Wednesday. The Australian Dollar jumped 0.89 percent against the U.S. Dollar during the past week that witnessed a widely expected pause by the Reserve Bank of Australia. Amidst the dollar's weakness, the pair rose from the level of 0.6546 recorded on September 26 to close the week ended October 3 at 0.6604. During the week, the pair oscillated between a low of 0.6545 recorded on Monday and the high of 0.6630 recorded on Wednesday.

The U.S. Dollar plunged heavily against the Japanese Yen during the week ended October 3 as the yen strengthened given its status as a safe-haven asset amid global uncertainties. The USD/JPY pair closed the week at 147.45 versus 149.51 a week earlier, registering a loss of 1.38 percent. The pair ranged between the high of 149.56 recorded on Monday and the low of 146.58 recorded on Wednesday.

Despite anxiety about the federal shutdown, the 6-currency Dollar Index has rebounded on Monday amidst weakness in the euro as well as the Japanese yen. It is currently trading at 98.22 versus 97.72 at close on Friday.

Amidst the political turmoil in France and the prime minister's resignation, the EUR/USD pair has declined to 1.1698 from 1.1743 on Friday. The GBP/USD pair has dropped to 1.3460 from 1.3480 on Friday. The AUD/USD pair has increased to 0.6617 from 0.6604 at close on Friday. The USD/JPY pair has jumped to 149.91 from the level of 147.45 recorded at the end of the previous week while markets weigh the likelihood of a dovish pivot by Bank of Japan.