FOREX-Dollar dips as threat of US government shutdown looms

By Amanda Cooper and Gertrude Chavez-Dreyfuss

LONDON/NEW YORK, Sept 30 (Reuters) - The U.S. dollar softened against most currencies except the yen on Tuesday ahead of a likely U.S. government shutdown that could disrupt the release of the monthly jobs report this week.

Investor focus was on the impending U.S. shutdown. Government funding expires at midnight on Tuesday (0400 GMT) unless Republicans and Democrats agree to a last-minute interim deal.

"A possible U.S. government shutdown first thing Wednesday morning is keeping the U.S. dollar under downside pressure," said Elias Haddad, senior markets strategy, at Brown Brothers Harriman in a research note.

"The logic is that a government shutdown could lead to a more dovish Fed. If a shutdown is brief, the Fed will ignore it. However, a prolonged shutdown (more than two weeks), increases the downside risk to growth and raises the likelihood of a more accommodative Fed."

U.S. rate futures are pricing in 43 basis points of easing this year, most likely starting with 25 bp in October, with a strong chance of a second by year-end.

The potential shutdown unsettled investors awaiting Friday's nonfarm payrolls report.

The U.S. Labor and Commerce departments said their statistics agencies would halt data releases in the event of a partial shutdown, including closely watched employment data for September.

The payrolls report, due Friday, is crucial for Federal Reserve decision-making, so a delay could generate extra market volatility, as uncertainty among investors increases.

In late morning, the dollar fell 0.5% against the yen JPY=EBS to 147.86, extending its decline after a mixed Bureau of Labor Statistics' Job Openings and Labor Turnover Survey, or JOLTS.

The report showed that U.S. job openings increased marginally in August while hiring declined, consistent with a softening labor market. Job openings, a measure of labor demand, rose 19,000 to 7.227 million by the last day of August.

Hiring, on the other hand, decreased 114,000 to 5.126 million in August. Layoffs dropped 62,000 to 1.725 million.

The dollar index slid 0.2% to 97.756 =USD, while the euro rose 0.1% to $1.1742 EUR=EBS.

The greenback was also weighed down by the Conference Board's consumer confidence index, which dropped 3.6 points to 94.2 this month. Economists polled by Reuters had forecast a drop to 96.0.

For the yen, investors considered the Bank of Japan's summary of opinions from its September meeting, at which the possibility of a near-term rate hike was discussed. Markets show traders currently place a 60% chance on a December rise.

Strategists at ING say selling dollar for yen could prove popular should the U.S. shutdown materialise. The dollar has risen 0.7% against the yen this month, but has fallen nearly 6% so far in 2025, as investors have felt that Japanese rates are likely to slowly rise, while those in the United States fall.

"A lower dollar/yen may well remain the favourite trade during the shutdown. It lost 1.5% during the 2018-19 shutdown, and is currently trading 1% above its short-term fair value, according to our model," ING FX strategist Francesco Pesole said.

The Australian dollar AUD=D3 was last up 0.8% at US$0.6625, after the Reserve Bank of Australia, which has lowered borrowing costs three times this year, held rates steady as expected. The bank said recent data suggested inflation might be higher than forecast in the third quarter and the economic outlook remained uncertain.

In Europe, sterling shrugged off data that showed Britain's economic growth slowed to 0.3% between April and June this year, while the current account deficit grew in the three months to the end of June by far more than expected to the equivalent of 3.8% of GDP, up from 2.8% in the first quarter of 2025.

The pound GBP= was last flat at $1.3436 and a touch weaker against the euro EURGBP=, which was up 0.1% at 87.38 pence. The euro EUR=EBS edged up 0.1% against the dollar to $1.174.