Rising Shutdown Risk and Data Uncertainty Propel US Dollar Bears to Target $97.5 Support Level

September 29, 2025

US Dollar Under Pressure amid Shutdown Fears and Fed Scrutiny

New York – The US dollar commenced the trading week on a downward trajectory, extending losses observed at the end of the previous week.Investors are increasingly apprehensive about the possibility of a US government shutdown and the flow of forthcoming economic data releases. Last week, the Dollar Index (DXY) experienced an initial rise fueled by expectations of sustained higher interest rates, but subsequently retreated following the release of inflation figures that aligned with forecasts.

Shutdown Looms Large over Currency Markets

All eyes are now on the looming threat of a partial government shutdown, slated to begin Wednesday at midnight if Congress fails to reach a budgetary agreement. The uncertainty surrounding this potential disruption has already pushed the DXY below the 98 level. A shutdown could significantly weaken the dollar, as it would impact government expenditures and delay the publication of crucial economic indicators.

Lawmakers are currently engaged in intense negotiations to avert a shutdown, but a consensus remains elusive. Should a shutdown materialize, the release of key reports, such as the Producer Price Index (PPI) and the Consumer Price index (CPI), could be postponed.This delay would deprive the Federal Reserve of timely data, complicating its monetary policy decisions and introducing greater volatility into the market.

Political Rhetoric Raises Concerns about Fed Independence

Beyond the budget impasse, political commentary is also exerting influence on the dollar’s performance. Over the weekend, former President Donald Trump shared a social media post questioning the position of federal Reserve Chair Jerome Powell, igniting worries about the central bank’s independence. Such interventions have historically unsettled markets and raised concerns about politically motivated monetary policy.

Investor apprehension regarding potential political interference is making foreign investors more wary of holding dollar-denominated assets. This concern could overshadow the Fed’s data-driven approach to interest rate adjustments, potentially leading to missteps and increased economic risks.

economic Data Set to Drive Market sentiment

A barrage of significant US economic data is scheduled for release this week,including figures on Gross domestic Product (GDP),inflation,and the pivotal non-farm payrolls report. The labor market data, due out on Friday, is anticipated to reveal a slowdown in job growth and a steady unemployment rate of 4.3 percent. This details would be instrumental in guiding the Fed’s deliberations ahead of its October meeting.

August’s Personal Consumption Expenditures (PCE) data, released last week, indicated a headline inflation rate of 2.7 percent year-over-year and core inflation of 2.9 percent-both in line with expectations. The absence of inflationary surprises prompted a slight pullback in the dollar, causing the DXY to dip below 98.

Currently, financial markets are pricing in approximately a 40-basis-point reduction in interest rates by the end of the year. This expectation may limit any ample upward movement in the US dollar in the near term.

Technical analysis: DXY Forecast

Technically, the US dollar index recently encountered resistance at the 98 level after a 10-day period of recovery. This level is a crucial point, coinciding with both the 3-month exponential moving average (EMA) and the 0.144 Fibonacci retracement level.

Indicator	Value
Resistance Level	98
Initial Support Level	97.50
Secondary Support Level	96.50
Breakout Signal	Above 98.5

If the index fails to break above 98, initial support is expected around 97.50, with a further decline potentially reaching 96.50. Conversely, a sustained move above 98.5 would suggest a short-term bullish reversal.

The US dollar is currently navigating a complex landscape of potential shutdown risks, concerns about the Fed’s autonomy, and a busy economic calendar. These factors are collectively capping its upside potential. Resolution of the shutdown situation and timely release of economic data could pave the way for a renewed recovery.

Did You Know? The Dollar Index (DXY) measures the US dollar’s value against a basket of six major currencies: Euro, Japanese Yen, British Pound, Canadian Dollar, Swedish Krona, and Swiss Franc.

Pro Tip: Monitoring the yield spread between US Treasury bonds and those of other major economies can provide valuable insights into the relative attractiveness of the US dollar.

Frequently Asked Questions about the US Dollar

• What factors influence the value of the US dollar? The value of the US dollar is affected by a complex interplay of factors, including interest rates, economic growth, inflation, political stability, and global risk sentiment.
• How does a US government shutdown impact the dollar? A government shutdown can weaken the dollar by disrupting government spending, delaying economic data releases, and increasing economic uncertainty.
• What is the role of the Federal Reserve in determining the dollar’s value? The Federal reserve influences the dollar’s value through its monetary policy decisions, especially adjustments to interest rates and quantitative easing programs.
• What is the dollar Index (DXY)? the DXY is a measure of the dollar’s value compared to a basket of six major currencies, providing a snapshot of its overall strength.
• How does political uncertainty affect the US dollar? Political uncertainty generally leads to a decrease in investor confidence and can cause the dollar to weaken, as investors seek safer assets.

What are your thoughts on the potential impact of a government shutdown on the global economy? Share your opinion in the comments below!

How might a prolonged US government shutdown specifically impact the reliability of key economic data releases, and what implications could this have for the Federal Reserve’s monetary policy decisions?

Decoding the Dollar’s Descent: A Perfect Storm

The US Dollar Index (DXY) is currently facing significant downward pressure,with bears increasingly targeting the $97.5 support level. This isn’t a sudden shift,but rather the culmination of several interconnected factors: escalating US government shutdown risks,growing uncertainty surrounding key economic data releases,and a cautious reassessment of Federal Reserve policy. Understanding these dynamics is crucial for forex traders,investors,and anyone monitoring the global economic landscape.The weakening dollar impacts everything from import costs to emerging market debt.

The Shutdown Specter: Political Gridlock and Economic Fallout

The looming threat of a US government shutdown is a primary driver of dollar weakness. Here’s a breakdown of the key concerns:

* Reduced Economic Activity: A shutdown halts non-essential government services, impacting economic data collection and perhaps delaying crucial reports. This data disruption fuels uncertainty.

* Fiscal Uncertainty: Prolonged political deadlock erodes confidence in the US fiscal outlook, making the dollar less attractive to foreign investors.

* Historical Precedent: Past government shutdowns, like the one in 2013, demonstrated a temporary but noticeable weakening of the US dollar. While not always dramatic, the pattern is consistent.

* Debt Ceiling Concerns: The shutdown debate often intertwines with the debt ceiling, raising fears of a potential US default – a catastrophic scenario for the dollar’s standing.

Currently, the primary sticking point revolves around funding levels and policy riders attached to spending bills. The lack of bipartisan agreement is amplifying market anxieties. traders are pricing in a higher probability of a shutdown extending beyond a few days, contributing to the “risk-off” sentiment.

data Dependency and the Fed’s dilemma

beyond the political turmoil, the reliability of upcoming economic data is under scrutiny. A government shutdown directly impacts data collection, potentially skewing figures and making it harder for the Federal Reserve to accurately assess the state of the economy.

* Impacted Data Releases: Key reports like the monthly jobs report, GDP figures, and inflation data could be delayed or released with disclaimers about data quality.

* Fed Policy Implications: The Fed has repeatedly emphasized its “data-dependent” approach to monetary policy. Unreliable data complicates their decision-making process, increasing policy uncertainty.

* Inflation Concerns: While inflation has cooled from its peak, persistent core inflation remains a concern. A shutdown could mask underlying inflationary pressures or create artificial distortions.

* Yield Curve Inversion: The continued inversion of the US Treasury yield curve – where short-term yields exceed long-term yields – signals recessionary risks. shutdown-induced uncertainty exacerbates these concerns.

Technical Analysis: Charting the Dollar’s Decline

From a technical viewpoint, the DXY is exhibiting bearish signals.

* Breakdown Below Key Levels: the dollar has broken below several key support levels in recent weeks,indicating a shift in momentum.

* Moving average Crossovers: Bearish moving average crossovers (e.g., the 50-day moving average crossing below the 200-day moving average) confirm the downtrend.

* Relative Strength Index (RSI): The RSI is approaching oversold territory,suggesting a potential for a short-term bounce,but the overall trend remains downward.

* $97.5 Support Level: The $97.5 level represents a critical support zone. A decisive break below this level could trigger further selling pressure, potentially targeting the $96 level.

Chart Analysis (as of September 29, 2025): the DXY is currently trading around 98.2, down approximately 1.5% from its recent highs. Volume is increasing on down days, confirming the bearish sentiment.

Currency Pair Implications: Winners and Losers

The dollar’s weakness is benefiting several currencies:

* Euro (EUR/USD): The Euro is poised to benefit from a weaker dollar, potentially testing the 1.10 level. However, the Eurozone economy also faces challenges, limiting its upside potential.

* Japanese Yen (USD/JPY): The Yen has strengthened against the dollar,driven by both dollar weakness and potential intervention by the Bank of japan to stabilize the currency.

* british pound (GBP/USD): the Pound is also gaining ground, but remains sensitive to developments in the UK economy and Brexit-related uncertainties.

* Emerging Market Currencies: A weaker dollar generally supports emerging market currencies, reducing the burden of dollar-denominated debt.Though, risk appetite remains a key factor.

Risk Management Strategies for Traders

Given the current environment, traders should adopt a cautious approach:

1.