The shutdown came as a bolt from the blue for the US dollar. The greenback was confident that Democrats and Republicans would reach a last-minute agreement. That did not happen. During previous government shutdowns, the dollar index typically fell on expectations of slowing GDP and mass layoffs. In 2025, the situation will worsen because the labour market is already cooling down.
Due to the shutdown, the publication of important data will be postponed. Therefore, the importance of the ADP report increases. Over the last two months, there has been a decline in private sector employment. This increased the chances of a federal funds rate cut in October to 99% and in December to 87%. Treasury bond yields and the US dollar fell.
There is increased demand for safe-haven assets in the markets. Gold continues to break records, Treasury yields are falling, and the yen has moved away from the political crisis in Japan and is growing steadily. In contrast, European currencies are not yet able to take full advantage of the weakness of the US dollar. The euro is hampered by geopolitics and events in France.
