Dollar Slips as U.S. Government Shutdown Risks Loom and Fed Outlook Remains Uncertain

The U.S. dollar weakened on Monday as traders braced for a wave of economic data that could shape the Federal Reserve’s next moves on interest rates. The growing risk of a U.S. government shutdown added further uncertainty to markets, dampening demand for the greenback.

Currency movements were modest in early Asian trading. The dollar slipped 0.2% against the Japanese yen to 149.24, after posting more than a 1% gain last week. The euro edged higher by 0.15% to $1.1717, while the British pound gained 0.11% to $1.3418. The Australian dollar rose 0.15% to $0.6557, and the New Zealand dollar inched up 0.07% to $0.5780.

Investor attention is firmly on Washington, where Congress must pass a funding bill before the fiscal year ends on Tuesday. Without a resolution, parts of the U.S. government would shut down starting Wednesday, coinciding with the beginning of fiscal year 2026. Such a closure could delay the release of key economic data, including Friday’s closely watched nonfarm payrolls report.

Analysts note that a shutdown could complicate trading strategies. “If we’re going to have a government shutdown, we won’t have the payrolls numbers. So how do you trade the non-release of a number? You can’t,” said Ray Attrill, head of FX research at National Australia Bank. He added that markets are assuming the shutdown will be temporary and that critical data will be available before the Fed’s late-October meeting.

Meanwhile, U.S. data on job openings, private payrolls, and ISM manufacturing are also due this week, offering fresh insights into the economy’s resilience. Recent stronger-than-expected figures have scaled back expectations for aggressive Fed rate cuts. Markets now anticipate about 40 basis points of easing by December.

Separately, the Reserve Bank of Australia is set to announce its rate decision on Tuesday, with expectations it will keep policy unchanged.