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The US dollar attempted to stabilize on Tuesday near multi-month lows but could remain under sustained pressure. On the domestic front, the risk of another US government shutdown fuelled some caution.
The partial shutdown could have an impact on the economy and visibility if data releases are affected.
Adding to the unease are expectations that Donald Trump may announce a new Federal Reserve Chair in the coming weeks, with markets concerned the nominee could lean more dovish. Such a move would likely reinforce doubts over the Fed’s independence and extend downward pressure on the dollar.
Trade policy is also back in focus after Trump signalled plans to raise tariffs on South Korea, reviving fears that unilateral trade actions could return to the forefront. Should risks of an aggressive tariff policy escalate, US assets might come under pressure.
Externally, the dollar remains vulnerable to developments in Japan. Speculation around a potential coordinated currency intervention involving the Federal Reserve and the Bank of Japan continues to fuel demand for the yen, which could generate additional selling pressure on the greenback.
Looking ahead, today’s ADP Employment Change may offer some insight into labour market momentum, but the primary catalyst will be Wednesday’s Fed rate decision. While rates are widely expected to remain unchanged, markets will be highly sensitive to any forward guidance, which could inject volatility into both the dollar and treasury yields.
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