Dollar Outlook: Government shutdown risks weigh on markets, with the US dollar index falling below its 50-day moving average
2025-09-30 00:24:15
The U.S. dollar index (DXY) fell below its 50-day moving average during U.S. trading on Monday (September 29), falling 0.32% to close at 97.774. Traders are assessing the risk of an impending government shutdown while also watching the release of a series of U.S. economic data.
After failing to hold above the key retracement range of 98.238-98.714 late last week, the dollar's gains have faltered and it is now facing key technical support at 97.412, the 50% retracement of the recent range of 96.218-98.605. A break below 97.199 would confirm a short-term trend reversal and put the index into a bearish setup.
Shutdown concerns cloud dollar outlook
Concerns about a potential U.S. government shutdown weighed on market sentiment as the September 30 funding deadline approached. Failure to pass a spending bill would force multiple government agencies to close, and the first day of fiscal year 2026 falls on Wednesday (October 1).
Analysts point out that the dollar usually weakens before a government shutdown, but tends to rebound once the problem is resolved. However, this time, the market is pricing in greater risks: if the shutdown lasts longer, it could lead to delays in the release of key economic data, including Friday's non-farm payroll report, which is expected to show 59,000 new jobs and an unemployment rate of 4.3%.
Fed News: Board Member Cook faces legal threats, raising expectations for rate cuts
A new twist: Uncertainty over the Federal Reserve's leadership is also weighing on the dollar, with a legal dispute intensifying over the potential removal of Governor Lisa Cook.
An appeal has been lodged with the Supreme Court to rule on whether the president has the legal power to remove him from office - a move that could raise questions about the central bank's independence.
At the same time, traders expect the Fed to cut interest rates by 40 basis points by December and 110 basis points by the end of 2026. This expectation reflects that the market has warmed up the market's expectations for looser Fed policy after the release of recent hawkish data.
Interest rate differentials narrowed, with the yen leading gains among G10 currencies
The Japanese yen strengthened on Monday, rising 0.6% to 148.67 yen per dollar, recovering some of last week's losses. This is driven by investor bets that the Bank of Japan will shift to a hawkish policy stance. Jefferies economists are currently leaning toward a short position on the USD/JPY exchange rate, citing the possibility of a Bank of Japan rate hike and potential adjustments to regional foreign exchange policies.
Meanwhile, U.S. Treasury yields fell across the board: the 10-year Treasury yield fell to 4.145% and the 2-year Treasury yield fell to 3.631% as traders prepared for key labor market data.
Market Outlook: Bearish bias after breaking below 97.412 support level
(Source of US Dollar Index daily chart: Yihuitong)
The US dollar index has fallen below its 50-day moving average and is facing a key support range of 97.412. The index is at risk of a downside move. A break below 97.199 would confirm a trend reversal.
Until then, traders will continue to monitor the progress of the government shutdown and labor market data - factors that could recalibrate market expectations for Fed rate hikes and, in turn, influence the dollar.
At 00:22 Beijing time, the US dollar index was at 97.9089/9280, down 0.25%.
After failing to hold above the key retracement range of 98.238-98.714 late last week, the dollar's gains have faltered and it is now facing key technical support at 97.412, the 50% retracement of the recent range of 96.218-98.605. A break below 97.199 would confirm a short-term trend reversal and put the index into a bearish setup.
Shutdown concerns cloud dollar outlook
Concerns about a potential U.S. government shutdown weighed on market sentiment as the September 30 funding deadline approached. Failure to pass a spending bill would force multiple government agencies to close, and the first day of fiscal year 2026 falls on Wednesday (October 1).
Analysts point out that the dollar usually weakens before a government shutdown, but tends to rebound once the problem is resolved. However, this time, the market is pricing in greater risks: if the shutdown lasts longer, it could lead to delays in the release of key economic data, including Friday's non-farm payroll report, which is expected to show 59,000 new jobs and an unemployment rate of 4.3%.
Fed News: Board Member Cook faces legal threats, raising expectations for rate cuts
A new twist: Uncertainty over the Federal Reserve's leadership is also weighing on the dollar, with a legal dispute intensifying over the potential removal of Governor Lisa Cook.
An appeal has been lodged with the Supreme Court to rule on whether the president has the legal power to remove him from office - a move that could raise questions about the central bank's independence.
At the same time, traders expect the Fed to cut interest rates by 40 basis points by December and 110 basis points by the end of 2026. This expectation reflects that the market has warmed up the market's expectations for looser Fed policy after the release of recent hawkish data.
Interest rate differentials narrowed, with the yen leading gains among G10 currencies
The Japanese yen strengthened on Monday, rising 0.6% to 148.67 yen per dollar, recovering some of last week's losses. This is driven by investor bets that the Bank of Japan will shift to a hawkish policy stance. Jefferies economists are currently leaning toward a short position on the USD/JPY exchange rate, citing the possibility of a Bank of Japan rate hike and potential adjustments to regional foreign exchange policies.
Meanwhile, U.S. Treasury yields fell across the board: the 10-year Treasury yield fell to 4.145% and the 2-year Treasury yield fell to 3.631% as traders prepared for key labor market data.
Market Outlook: Bearish bias after breaking below 97.412 support level
(Source of US Dollar Index daily chart: Yihuitong)
The US dollar index has fallen below its 50-day moving average and is facing a key support range of 97.412. The index is at risk of a downside move. A break below 97.199 would confirm a trend reversal.
Until then, traders will continue to monitor the progress of the government shutdown and labor market data - factors that could recalibrate market expectations for Fed rate hikes and, in turn, influence the dollar.
At 00:22 Beijing time, the US dollar index was at 97.9089/9280, down 0.25%.
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