The U.S. dollar weakened on Tuesday against most major currencies, except the yen, as investors focused on the risk of a U.S. government shutdown that could disrupt this week’s monthly jobs report.
Government funding will expire at midnight Tuesday unless Democrats and Republicans agree on a temporary deal. Analysts warn that a shutdown could weigh on the economy and increase expectations for a more dovish Federal Reserve.
Elias Haddad, senior market strategist at Brown Brothers Harriman, said a shutdown would keep the dollar under pressure. A short shutdown may have little effect, but one lasting more than two weeks could slow growth and push the Fed toward more accommodative policies.
Rate futures currently price in 43 basis points of easing this year, with one 25-basis-point cut likely in October and a strong chance of another before year-end.
The possible shutdown has unsettled markets ahead of Friday’s nonfarm payrolls report, a key input for Fed decision-making. Both the Labor and Commerce Departments confirmed that they would halt economic data releases, including employment figures, in the event of a shutdown.
In late morning trading, the dollar fell 0.5% against the yen to 147.86. The move extended losses following a mixed JOLTS report that showed job openings rose slightly in August, while hiring declined. Layoffs also fell, pointing to a cooling labor market.
The dollar index slipped 0.2% to 97.756, while the euro gained 0.1% to $1.1742. The greenback was also pressured by weaker consumer confidence data, with the Conference Board index falling to 94.2, below expectations.
Investors are also watching the Bank of Japan, where policymakers have discussed the possibility of a rate hike. Markets currently see a 60% chance of a move in December. ING strategists suggested that selling dollars for yen could be a favored trade if the U.S. shutdown takes place.
Elsewhere, the Australian dollar rose 0.8% to US$0.6625 after the Reserve Bank of Australia held rates steady but warned inflation could rise higher than expected.
In Europe, the British pound traded flat at $1.3436, despite data showing slower GDP growth and a widening current account deficit. The euro edged up against both sterling and the dollar.
