Government shutdown pressures dollar, risk indicators show downside risks

The dollar is heading for its longest losing streak in a month as the US enters its first government shutdown in almost seven years. Historical data show that government shutdowns typically weigh on the dollar, as do options markets. The risk reversal indicator, which measures the gap in demand between bullish and bearish trades, points to further downside risks to the dollar in the coming month. Mohit Kumar, chief European strategist at Jefferies, said the declines in equities and gains in US Treasuries were likely to be modest, but "the foreign exchange market is the market we wouldn't expect to reverse the current trend", and he expected dollar weakness to continue. The duration of the government shutdown is crucial, and the longer the shutdown, the greater the pressure on the dollar. This year, the dollar has fallen to its lowest level since 2022 due to policy uncertainty under Trump, widening deficits, and pressure on the independence of the Federal Reserve, all of which have raised concerns among investors.