Finance
Dollar weakens after strong rally as US government shutdown looms
Published by Global Banking & Finance Review®
Posted on September 29, 2025
4 min readLast updated: January 21, 2026
Global Banking & Finance Review®
Company
Published by Global Banking & Finance Review®
Posted on September 29, 2025
4 min readLast updated: January 21, 2026
The dollar weakened against major currencies as the risk of a US government shutdown looms, impacting market reactions and economic data.
By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) -The dollar slid against major currencies such as the euro and yen on Monday following a rally last week after stronger-than-expected U.S. economic data and ahead of a key nonfarm payrolls report that could offer further clues on the Federal Reserve's policy path.
Data on housing, durable goods, and revisions to the second quarter gross domestic product came out higher than forecast. In addition, U.S. jobless claims fell sharply. The economic reports prompted a pullback in expectations for Fed interest rate cuts.
The greenback's retreat also came amid the risk of a government shutdown, with funding due to expire at midnight on Tuesday. President Donald Trump will convene a meeting with congressional leaders at the White House on Monday in a last-ditch attempt to end the standoff.
"We're broadly consolidating today, a little bit of a heavier tone. But a lot rests on whether the government closes down at midnight tomorrow," said Marc Chandler, chief market strategist, at Bannocknurn Forex in New York.
"What was going to be the next impetus was going to be the jobs data this coming Friday, but if the government closes, then we won't get the jobs data right. So I think what that means is that it increases the uncertainty."
The U.S. Labor Department confirmed on Monday that its statistics agency would suspend economic data releases, including the closely-watched monthly employment report for September, in the event of a partial government shutdown
In afternoon trading, the dollar fell 0.6% to 148.61, after posting last week its best weekly gain of more than 1% since early July.
The dollar index - a measure of its value relative to a basket of foreign currencies - was down 0.2% on to 97.9q, having risen 0.5% last week.
The euro, the largest component in the dollar index, rose 0.3% versus the U.S. unit to $1.1731.
Traders are currently pricing in 42 basis points of Fed easing by December and a total of 105 basis points by the end of 2026, about 25 bps less than levels seen in mid-September
Top of investors' minds was a looming U.S. government shutdown should Congress fail to pass a funding bill before the fiscal year ends on Tuesday. Without passage of funding legislation, parts of the government would close on Wednesday, the first day of its 2026 fiscal year.
Analysts say the dollar typically weakens ahead of such episodes, before rebounding once the funding dispute is resolved. Markets are likely to see it as a fresh headwind for an already sluggish labour market.
"History would suggest that a short-lived government shutdown should have a relatively modest impact on the economy and on currency markets," said Karl Schamotta, chief market strategist, at Corpay in Toronto.
Ahead of Friday's jobs report, investors will also get figures on job openings, private payrolls and the ISM manufacturing PMI, among others.
In other currency pairs, the dollar slipped 0.1% to 0.7973 franc while sterling gained 0.3% to $1.3436.
Analysts expect inflation data from euro zone countries to have little impact on the rate outlook or the single currency, as investors expect policy to remain stable. Spain's European Union-harmonised 12-month inflation rate rose to 3.0% in September.
The market's attention, in addition, remained on the war in Ukraine and the potential for increased military spending.
In Japan, the diverging outlook for rates between the Fed and the Bank of Japan will remain in focus amid signs of a hawkish shift on the BOJ board.
In other currencies, the Aussie was last 0.5% higher at US$0.6580. The Reserve Bank of Australia announces its rate decision on Tuesday. Expectations are for the central bank to stand pat on rates.
(Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Stefano Rebaudo in Milan; Editing by Shri Navaratnam and Jamie Freed)
The dollar weakened against major currencies following a strong rally due to stronger-than-expected U.S. economic data and the looming risk of a government shutdown.
If the government shuts down, the U.S. Labor Department confirmed that it would suspend economic data releases, including the important monthly employment report.
Analysts suggest that the dollar typically weakens ahead of government shutdowns but may rebound once the funding dispute is resolved, indicating a short-lived impact.
Reports on housing, durable goods, and revisions to the second quarter GDP showed higher than forecast results, contributing to the dollar's earlier rally.
Traders are currently pricing in 42 basis points of Fed easing by December and a total of 105 basis points by the end of 2026.
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