The U.S. dollar strengthened to its highest level in over two months in early Asian trading on Wednesday, fueled by mounting concerns over the prolonged U.S. government shutdown and a surge in global risk aversion. The dollar index (DXY) rose 0.3% to 98.91, its strongest since August 5, as President Donald Trump threatened to carry out mass firings of federal workers amid a worsening budget standoff. The ongoing shutdown now entering its second week has significantly dampened investor confidence, with the betting site Polymarket placing the likelihood of a resolution within the next week at just 26%.
Why It Matters
The political gridlock in Washington has amplified fears about U.S. fiscal stability and its potential impact on economic growth, driving investors toward safe-haven assets like the dollar and gold. Analysts at Westpac noted that “with no resolution to the government shutdown in sight, sentiment in financial markets deteriorated.”
At the same time, the Reserve Bank of New Zealand (RBNZ) shocked markets with a 50-basis-point interest rate cut, double the expected move, and signaled the possibility of further easing amid worsening economic data. The surprise decision sent the New Zealand dollar (NZD) tumbling 1% to $0.5739, while the Australian dollar (AUD) also slipped 0.4% to $0.6559. Joseph Capurso of Commonwealth Bank of Australia said the move “inevitably” pushed the kiwi lower and predicted it could fall below 57 U.S. cents once London trading opens.
Regional Market Focus
In Asia, currency traders also monitored developments in Japan, where the yen weakened to 152.53 per dollar, near its lowest level since February. The decline came as markets assessed the policy outlook of Prime Minister-elect Sanae Takaichi, who unexpectedly won the ruling party leadership race over the weekend. Investors are watching whether Takaichi an ally of the late Shinzo Abe will adopt similar pro-stimulus policies, which could support equities but keep the yen under pressure.
Meanwhile, precious metals extended their rally, with spot gold surpassing $4,000 per ounce for the first time as investors sought shelter from political and economic instability. Analysts at ING said, “Uncertainty about the global economy is one of the main drivers, and the U.S. government shutdown isn’t exactly helping sentiment either.”
Key Indicators
- Dollar Index (DXY): 98.91, up 0.3%, highest since August 5
- NZD/USD: 0.5739, down 1% after surprise RBNZ cut
- AUD/USD: 0.6559, down 0.4%
- USD/JPY: 152.53, up 0.4%, strongest since February
- EUR/USD: 1.1618, down 0.3%
- GBP/USD: 1.3395, down 0.2%
- Offshore Yuan (CNH): 7.1506 per dollar, 0.1% weaker
- Gold: above $4,000 per ounce (record high)
- U.S. 10-Year Treasury Yield: 4.1307%, slightly up from 4.127%
The Federal Reserve remains widely expected to deliver a 25-basis-point rate cut later this month, with CME FedWatch data showing a 94.6% probability.
What’s Next
Markets will continue to track U.S. political negotiations as the shutdown drags on, with potential implications for consumer spending, government services, and fourth-quarter GDP growth. Central bank policy remains in focus, particularly as investors weigh the Fed’s next move against a backdrop of softening global data and escalating political tension.
Currency volatility is likely to persist through the London and New York sessions, with traders watching whether the kiwi and yen sustain further losses
With information from Reuters.
