US Dollar Forecast: DXY Falls as Government Shutdown Undermines Confidence

Government Shutdown Fuels Broader Dollar Weakness

The US Dollar Index extended its decline on Wednesday, marking its fourth straight session of losses, as political dysfunction in Washington intensified. The failure of lawmakers to pass a federal funding bill triggered a government shutdown, weakening confidence in the greenback. DXY fell 0.2% to 97.61, placing it down 10% year-to-date — tracking toward its worst annual performance since 2003.

At 14:15 GMT, DXY is trading 97.656, down 0.138 or -0.14%.

Investor anxiety over prolonged political gridlock has revived safe-haven demand for the Japanese yen, Swiss franc, and euro, with FX strategists warning that extended uncertainty could add fresh downside pressure.

Citigroup’s Daniel Tobon noted that while past shutdowns had limited economic fallout, persistent USD pessimism combined with rising geopolitical and fiscal risks may increase selling interest.

The shutdown also led to the delay of key U.S. economic data, including the September nonfarm payrolls report, forcing traders to rely on alternative indicators.

Private Payroll Miss Undermines Labor Market Confidence

ADP data released Wednesday showed a surprise drop of 32,000 private-sector jobs in September, sharply missing the expected 45,000 gain. August’s data was also revised down to show a loss of 3,000 jobs, from a previously reported 54,000 increase. The miss sent Treasury yields lower, with the 10-year yield falling nearly 5 basis points to 4.102%. The 30-year yield dropped 3.4 basis points to 4.699%.

With the government shutdown delaying official BLS numbers, markets leaned on ADP as a proxy. The disappointing print compounds the bearish narrative for USD, signaling a potential softening in labor market strength — a key metric for the Federal Reserve’s rate stance.

Technical Pressure Mounts Below 50-Day Moving Average

The DXY has breached its 50-day moving average of 98.038 and is trending lower toward the 50% retracement of the short-term 96.218–98.605 range at 97.412. Initial support is expected here, with potential for a short-covering bounce. A break below 97.199, however, would signal a shift in the minor trend and could open the door to deeper support at 96.377 and 96.218.

Resistance remains layered at the 50-day MA and extends into the 98.238–98.714 retracement zone, capped by the recent high at 98.605.

Market Outlook: USD Remains Vulnerable Unless Political Risk Clears

The confluence of political instability, labor market weakness, and technical deterioration has tilted sentiment firmly bearish. Unless a rapid shutdown resolution emerges or data surprises to the upside, the path of least resistance for the US Dollar Index points lower — with 97.199 as the immediate trigger for further downside toward 96.218.

More Information in our Economic Calendar.