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US dollar faces near-term pressure from government shutdown risk and political uncertainty.
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Key economic data releases will guide Fed decisions and influence DXY moves.
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Technical resistance at 98 may cap gains, while support at 97.50 limits downside.
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The opened the week lower, continuing Friday’s drop. Investors are worried about a possible US government shutdown and the stream of economic data. Last week, the DXY had risen as expectations for a weakened, but it fell back after Friday’s came in as expected.
This week, attention is on a potential partial government shutdown starting Wednesday at midnight. The DXY tested below 98 as uncertainty grows. A shutdown could hurt the US dollar because it would affect government spending and delay key economic data releases.
Pricing the Possibility of a Shutdown
The US Congress is still negotiating the budget, but no agreement has been reached yet. If a shutdown happens, key economic reports like and the could be delayed. This could leave the Fed with less information for policy decisions, making it harder to guide markets.
Looking at history, short-term shutdowns have limited impact, so investors can be cautiously optimistic. However, the uncertainty reduces the US dollar’s appeal as a safe-haven asset.
Fed Independence Debate Reignites
Political messages are affecting the US dollar alongside budget talks. Over the weekend, President Donald Trump shared a cartoon on Truth Social showing Fed Chair Jerome Powell as if he could be dismissed, raising worries about the Fed’s independence.
Concerns over political influence on monetary policy make foreign investors cautious about holding US dollars. Such rhetoric could overshadow the Fed’s usual data-driven approach to interest rate cuts. If the Fed reduces rates due to political pressure rather than economic conditions, it could create bigger risks in the medium term.
Intense Data Flow Throughout the Week
Key US economic data will come out this week, including , , and the , which will show how strong the economy remains. The main focus is Friday’s non-farm payrolls report, expected to confirm slower job growth and an unemployment rate of 4.3%.
If the data is released on time, it will guide the Fed ahead of its October meeting. But a government shutdown could delay the numbers, creating uncertainty about the Fed’s interest rate decisions.
Friday’s August PCE data showed headline inflation at 2.7% year-on-year and core inflation at 2.9%, matching expectations. With no surprises, markets did not see a new inflation threat, and the US dollar gave back some gains, with the DXY falling below 98.
Markets are pricing in a roughly 40-basis-point rate cut by year-end. This expectation may cap any near-term gains in the US dollar.
US Dollar Technical Outlook
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Looking at the US dollar index technically, it recently tested the 98 level after a 10-day recovery but ran into resistance there. The 98 level is key, serving as both the 3-month EMA and the 0.144 Fibonacci level.
If the index fails to rise above 98, the first support is at 97.50, with a stronger pullback potentially reaching 96.50. A move above 98.5 would signal a short-term recovery.
The US dollar started the week cautiously amid concerns over a potential government shutdown, questions about the Fed’s independence, and a busy data schedule. These uncertainties are limiting its upside. If a shutdown is avoided and key economic data are released as expected, the DXY could see a potential recovery.
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