Dollar Weakens Amidst Government Shutdown Fears and Shifting Rate Expectations
New York, September 29, 2024 – The U.S. dollar retreated today, Monday, against a basket of major currencies, snapping a week-long rally fueled by surprisingly robust American economic data. The shift comes as investors brace for crucial non-farm payroll figures this Friday, which will heavily influence the Federal Reserve’s future interest rate policy.
Recent economic indicators – including strong housing data, commodity prices, and GDP revisions – alongside a sharp decline in unemployment claims, initially bolstered the dollar. Thes figures diminished expectations of imminent interest rate cuts by the Federal Reserve.However, concerns over a potential U.S. government shutdown are now weighing on the currency.
Funding for government operations is set to expire at midnight Tuesday, raising the specter of a partial government closure beginning Wednesday. President Trump is scheduled to meet with Congressional leaders today in a last-ditch effort to avert the crisis.
“the market is currently downplaying the shutdown risk, focusing instead on the possibility of weaker labor market data later this week which coudl reverse some of last week’s dollar gains,” noted Corbay, a market analyst based in Toronto.
Market expectations for Federal Reserve rate cuts have already begun to adjust.Dealers are now anticipating a 42 basis point reduction by December,and a total of 105 basis points by the end of 2026 – approximately 25 basis points lower than projections from mid-September.
Currency Movements:
* Dollar/Yen: The dollar fell 0.6% to 148.585 yen, following its strongest weekly performance sence early July.
* Dollar Index: The dollar index, measuring the currency’s performance against six major peers, dropped 0.2% to 97.90,after rising 0.5% last week.
* Euro/Dollar: The euro strengthened 0.3% against the dollar, trading at $1.1734.
Investors are closely monitoring the outcome of the congressional negotiations. A failure to pass a funding bill before the fiscal year ends Tuesday will trigger a government shutdown, possibly delaying the release of the highly anticipated non-farm payroll report on Friday and adding further uncertainty to the economic outlook.
Related Reads:
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