The reasons for the decline of the dollar and what are the future forecasts
The US dollar index continued its decline for the fourth consecutive session on Wednesday, falling to the level of 97.6, in light of the US federal government shutdown for the first time since 2019.
The shutdown came after Democrats and Republicans failed to reach a temporary funding agreement, while US President Donald Trump warned Democrats in Congress that allowing the shutdown of the federal government would allow his administration to take irreversible measures, including closing programs important to them.
Details of the decline and its causes
The US Dollar Index (DXY), which measures the performance of the US currency against a basket of six major currencies, has seen a noticeable decline.
This weakness is due not only to the government shutdown, but also to investors ' expectations that the Federal Reserve will adopt a more accommodative monetary policy in the future, as the markets are moving towards the likelihood of lowering interest rates. Analysts have noted that the dollar is trading in a heavy tone on all areas as investors prepare for a cautious message from the Fed.
Effects of the government shutdown
The government shutdown affects many joints in the economy and daily life, the most prominent of its effects are:
Federal employees: this impasse threatens to lay off an estimated 750 thousand federal employees, with an estimated daily cost of 400 million dollars in lost compensation, according to the Congressional Budget Office.
Government services: major government services may also be suspended, including the release of the monthly jobs report which is highly awaited by traders and investors around the world,The closure may also slow down air travel and suspend some scientific research.
Economic data: with the official jobs report likely to be postponed, traders are focusing more on other employment data, such as data released by ADP.
Political reactions
The roots of the crisis go deep into the deep partisan divisions between Democrats and Republicans.
While Republicans want a short-term extension of current spending levels, Democrats insist that any agreement should include an extension of the expired Obamacare subsidies, opposing spending cuts on public health care programs.
The Senate Majority Leader, Republican John Thune, criticizing the Democrats, stated and said that the Democrats are blocking the bill for their own partisan purposes, and the Senate is scheduled to vote again on the measure passed by the House of Representatives.
Future forecasts
The way out of this impasse is still unclear, and the last major government shutdown dates back to 2019, under President Trump himself, and lasted for 35 days due to disagreements over funding for the wall on the border with Mexico.
Recovery scenarios: the magnitude of the economic damage depends on the duration of the lockdown and how extensive it is, the disruption tends to be mostly temporary, and most of the lost activity is compensated during the months after the crisis ends.
Continued weakness: the US dollar is expected to resume its decline if political rhetoric indicates an extended government shutdown, amid continuing pressures caused by expectations of interest rate cuts and political uncertainty.
