NEW YORK :The dollar slid against major currencies such as the euro and yen on Monday following a rally last week after stronger-than-expected U.S. 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 came out higher than forecast. In addition, U.S. 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.
“We’re broadly consolidating today, a little bit of a heavier tone. But a lot rests on whether the government closes down at midnight tomorrow,” said Marc Chandler, chief market strategist, at Bannocknurn Forex in New York.
“What was going to be the next impetus was going to be the jobs data this coming Friday, but if the government closes, then we won’t get the jobs data right. So I think what that means is that it increases the uncertainty.”
The U.S. Labor Department confirmed on Monday that its statistics agency would suspend economic data releases, including the closely-watched monthly employment report for September, in the event of a partial government shutdown
In afternoon trading, the dollar fell 0.6 per cent to 148.61, after posting last week its best weekly gain of more than 1 per cent since early July.
The dollar index – a measure of its value relative to a basket of foreign currencies – was down 0.2 per cent on to 97.9q, having risen 0.5 per cent last week.
The euro, the largest component in the dollar index, rose 0.3 per cent versus the U.S. unit to $1.1731.
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
Top of investors’ minds was a looming U.S. 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.
“History would suggest that a short-lived government shutdown should have a relatively modest impact on the economy and on currency markets,” said Karl Schamotta, chief market strategist, at Corpay in Toronto.
Ahead of Friday’s jobs report, investors will also get figures on job openings, private payrolls and the ISM manufacturing PMI, among others.
In other currency pairs, the dollar slipped 0.1 per cent to 0.7973 franc while sterling gained 0.3 per cent to $1.3436.
Analysts expect inflation data from euro zone countries to have little impact on the rate outlook or the single currency, as investors expect policy to remain stable. Spain’s European Union-harmonised 12-month inflation rate rose to 3.0 per cent in September.
The market’s attention, in addition, remained on the war in Ukraine and the potential for increased military spending.
In Japan, the diverging outlook for rates between the Fed and the Bank of Japan will remain in focus amid signs of a hawkish shift on the BOJ board.
In other currencies, the Aussie was last 0.5 per cent higher at US$0.6580. The Reserve Bank of Australia announces its rate decision on Tuesday. Expectations are for the central bank to stand pat on rates.
