VINACHEM

The U.S. dollar slipped lower Wednesday, dropping to a one-week low on concerns an extended U.S. government shutdown will weigh on economic activity.

At 04:25 ET (08:25 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.2% lower to 97.275, falling to one-week lows.

U.S. government slowdown looms

The U.S. government has shut down much of its operations after an eleventh-hour spending bill backed by the Republican party failed to clear a Senate vote, amid persistent resistance from the Democrats.

There doesn’t appear to be a clear path out of the impasse, and many fear this shutdown could last longer than the budget-related closures of the past given the sharp political differences between the two sides.

President Donald Trump has already used the opportunity to threaten the dismissal of yet more federal workers, with over 150,000 workers due to leave federal payrolls this week after taking a buyout, the biggest exodus in 80 years.

“Investors are fearful that this could be a longer shutdown, which will only weigh further on consumer confidence and job security,” said analysts at ING, in a note.

This shutdown is set to prevent the release of the widely-watched nonfarm payrolls release, due on Friday - a particular concern to traders given this is seen by markets as key in determining whether a Federal Reserve interest rate cut is likely at the end of this month.

With this in mind the ADP National Employment Report may garner more attention than usual later in the session, and is expected to show a modest gain of 50,000 private-sector jobs in September.

Euro gains ahead of eurozone CPI release

In Europe, EUR/USD traded 0.2% higher to 1.1757, ahead of the release of the latest eurozone inflation figure later in the session, which is likely to show annual inflation ticked up to 2.2% from 2% previously.

However, risks could be to the upside after German inflation accelerated more than expected in September, rising for a second consecutive month and bringing an end to the disinflationary process of the previous months.

“However, we think the U.S. government shutdown and the softer dollar story should dominate today and could be enough to drag EUR/USD to 1.1800/1820,” said ING.

GBP/USD traded 0.2% higher to 1.3474, with sterling rising after a report from mortgage lender Nationwide Building Society indicated that British house prices rose slightly faster than expected last month, increasing 0.5% in September after a 0.1% drop in August.

House prices in September were 2.2% higher than a year earlier, up from an annual increase of 2.1% in August and well below the rates of both average wage growth and consumer price inflation.

Yen benefits from dollar weakness 

Elsewhere, USD/JPY fell 0.5% to 147.14, with the Japanese yen benefiting from the dollar weakness.

The Bank of Japan’s quarterly "tankan" corporate sentiment survey, released earlier Wednesday, showed that confidence at big Japanese manufacturers improved for the second straight quarter and firms maintained their upbeat spending plans.

AUD/USD dropped 0.1% to 0.6607, reversing gains recorded in the previous session after the Reserve Bank of Australia left interest rates unchanged.

The decision marked a pause after three cuts earlier in 2025 as the RBA balances upside inflation risks against signs of cooling in economic momentum.