NEW YORK: The dollar eased against major currencies such as the euro and yen on Monday following a rally last week in the wake of a slew of stronger-than-expected US economic data and ahead of a key nonfarm payrolls report that could offer further clues on the Federal Reserve’s policy path.
Data on housing, durable goods, and revisions to the second quarter gross domestic product, meanwhile, came out higher than forecast. In addition, US jobless claims fell sharply. The economic reports prompted a pullback in expectations for Fed interest rate cuts.
The greenback’s retreat also came amid the risk of a government shutdown, with funding due to expire at midnight on Tuesday. President Donald Trump will convene a meeting with congressional leaders at the White House on Monday in a last-ditch attempt to end the standoff.
“Traders are largely ignoring the risk of a government shutdown, and are instead fading last week’s dollar rally in anticipation of some softer labor market data releases in the days ahead,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.
“Yields are ratcheting lower off last week’s highs, and bets on Fed easing are coming back a bit on the margins. This is supporting broader risk appetite and contributing to outperformance in the high-beta currencies against the dollar.”
Traders are currently pricing in 42 basis points of Fed easing by December and a total of 105 basis points by the end of 2026, about 25 bps less than levels seen in mid-September.
In late morning trading, the dollar fell 0.6 percent to 148.585 , after posting its best weekly gain of more than 1 percent since early July. The dollar index - a measure of its value relative to a basket of foreign currencies - was down 0.2 percent on Monday to 97.90, having risen 0.5 percent last week.
The euro, the largest component in the dollar index, rose 0.3 percent versus the US unit to USD1.1734.
Top of investors’ minds was a looming US government shutdown should Congress fail to pass a funding bill before the fiscal year ends on Tuesday. Without passage of funding legislation, parts of the government would close on Wednesday, the first day of its 2026 fiscal year.
Analysts say the dollar typically weakens ahead of such episodes, before rebounding once the funding dispute is resolved. Markets are likely to see it as a fresh headwind for an already sluggish labour market.
A shutdown would have implications for the release of Friday’s closely-watched non-farm payrolls report, as well as subsequent economic data, which may not be published.
Ahead of Friday’s jobs report, investors will also get figures on job openings, private payrolls and the ISM manufacturing PMI, among others.
Investors are also closely watching the legal battle over Federal Reserve Governor Lisa Cook’s potential removal, as any threat to the Fed’s independence poses a far greater risk to the dollar than the government shutdown.
The Trump administration has asked the US Supreme Court to allow President Donald Trump to fire Cook, arguing that her removal would be a lawful exercise of presidential authority.
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