Shutdown Concerns Cloud Dollar Outlook
Concerns over a potential U.S. government shutdown weighed on sentiment, especially as the September 30 funding deadline approaches. Failure to pass a spending bill would trigger closures in several government agencies, with the first day of fiscal 2026 falling on Wednesday.
Analysts note that the dollar typically weakens ahead of shutdowns but often recovers once a resolution is reached. However, this time, the risk to market pricing is greater: a prolonged closure could delay key economic releases, including Friday’s nonfarm payrolls report, which is expected to show 59,000 job additions and an unemployment rate of 4.3%.
Fed Watch: Legal Threat to Governor Cook, Easing Expectations in Play
In a new twist, the dollar also faces uncertainty over the Federal Reserve’s leadership, with a legal battle brewing over Governor Lisa Cook’s potential removal.
The Supreme Court is being asked to rule on whether the President can legally dismiss her—an action that could raise questions about central bank independence.
Meanwhile, traders are pricing in 40 basis points of Fed cuts by December and 110 bps by the end of 2026, reflecting some easing in expectations after recent hawkish data.
Yen Leads G10 Gains as Yield Differentials Narrow
The yen outperformed on Monday, gaining 0.6% to 148.67 per dollar, reversing some of last week’s losses as investors bet on a hawkish turn from the Bank of Japan. Jefferies economists now favor short USD/JPY positions, citing potential rate hikes and regional FX policy shifts.
