Market snapshot: dollar slides amid U.S. government shutdown
The U.S. dollar added to its losses on Wednesday after lawmakers failed to avert a government shutdown, sparking fresh questions about the economy’s near-term trajectory. The dollar index, which tracks the greenback against a basket of six major currencies, dipped 0.2% to around 97.61. With this move, the currency is on pace to fall roughly 10% in 2025—an annual decline that would mark the worst since 2003, when the dollar shed about 14.6%.
News that the Senate could not pass a short-term funding bill, and political squabbles over extending enhanced Obamacare tax credits, catalyzed the selloff. President Donald Trump warned of potential benefit cuts if no agreement is reached, adding to the political uncertainty that traders say weighs on the dollar.
Why the dollar is weakening: political uncertainty meets fiscal risk
FX analysts note that historically, shutdowns tend to weaken the USD, particularly against safe-haven currencies such as the yen, euro, and Swiss franc. Yet the current narrative also includes a broader sense of U.S. dollar pessimism that could keep pressure on the currency even if lawmakers reach a quick resolution. “Historically, shutdowns have corresponded with a weaker USD, though primarily against safe haven currencies,” wrote Daniel Tobon, a foreign-exchange analyst at Citigroup. “Given persistent U.S. dollar pessimism in the current market narrative, further increased U.S. political uncertainty should also pressure the USD lower. However, a quick resolution to the shutdown could lead to limited follow-through, keeping us in similar ranges to recent months.”
The political stalemate has ripples beyond the currency market. The risk-off mood can lift demand for gold and push other asset classes into new ranges as investors reassess the odds of fiscal policy shifts in Washington. In fact, the latest moves in currencies helped lift gold futures into record territory, with prices trading above $3,900 an ounce at one point.
Market implications: assets influenced as the dollar wobbles
The greenback’s retreat often shifts flows into non-dollar assets. A weaker USD can be favorable for U.S. exporters and can support gold and commodities priced in dollars. But it also raises the risk of higher import costs and potential inflationary pressures if the government shutdown lingers, complicating the Federal Reserve’s monetary pathway. Traders should watch how other currencies respond to the Washington standoff, especially the euro and the yen, as well as shifts in risk appetite across equities and bonds.
What to watch next: potential paths and signals
Investors are monitoring two main developments: a resolution to the funding fight and any policy maneuvers tied to healthcare subsidies or other fiscal measures. If a deal is reached swiftly, the dollar may regain some footing and settle into a familiar range. If the stalemate persists, the USD could extend its slide, potentially testing support levels that have held through much of the year. In either scenario, traders will parse every statement from lawmakers and every economic data release for clues about the timeline and scope of fiscal action.
Context: 2025 could become the worst year for the dollar since 2003
With the currency already down about 10% in 2025, today’s developments place it on track for the worst annual decline in more than two decades. Observers stress that while a quick political fix could blunt the move, the combination of ongoing domestic political risk and a cautious global outlook suggests the dollar will continue to grapple with headwinds in the months ahead. For gold and other dollar-denominated assets, the current environment remains one of increased volatility and opportunity, as traders rebalance portfolios in response to evolving Washington policy expectations.
