The U.S. federal government has been in shutdown mode since October 1, 2025, after lawmakers failed to pass a new funding bill.
While the Senate recently approved a temporary measure to reopen parts of the government, the political gridlock has already rippled through global markets.
From flight delays to stalled public services, the shutdown’s impact is tangible but for traders, the real question is: How does this uncertainty affect the dollar and the broader Forex market?
Market Reaction: Mixed but Meaningful
Despite what many expected, the U.S. dollar has remained resilient.
Instead of collapsing, it found moderate support as investors sought safety amid political confusion.
Here’s how key pairs have reacted so far:
-
EUR/USD: Hovered below 1.07 as traders priced in U.S. political risk but also weaker European sentiment.
-
GBP/USD: Stayed under pressure as global risk appetite declined.
-
USD/JPY: Strengthened slightly, supported by continued yield differentials.
-
Gold (XAU/USD): Fluctuated around $2,350 as safe-haven demand offset the stronger dollar.
In essence, volatility increased, but directionality remained uncertain. The market is balancing two opposing forces political instability versus dollar demand as a global hedge.
Jaxon Reid’s Take
“The current environment isn’t about panic — it’s about a slow build-up of hidden risks. The shutdown clouds macro visibility and keeps traders guessing.”
According to Reid, the biggest challenge for Forex traders is the data blackout.
Many key U.S. economic indicators such as employment and inflation reports are delayed, reducing visibility and fueling speculation.
This vacuum leaves traders reliant on sentiment and technicals, rather than fundamentals. And when markets don’t have data, they often default to safety, which tends to favor the dollar in the short term.
What Traders Should Watch
-
The timeline for reopening.
If Congress passes a stopgap bill soon, risk appetite could rebound and weaken the USD temporarily. -
The Fed’s communication.
With limited data, the Federal Reserve’s tone becomes crucial any hint of confidence or concern could move markets sharply. -
Delayed macro reports.
Once economic data resumes, expect volatility spikes as traders adjust to the new information. -
Cross-asset correlations.
Stocks, commodities, and crypto often reflect sentiment before currency pairs do keep an eye on risk assets for early signals.
Strategic Outlook
Jaxon Reid recommends staying nimble and defensive during this phase:
-
Keep position sizes moderate and protect profits with tighter stops.
-
Consider short-term trading setups around USD volatility rather than long directional bets.
-
Watch for breakout opportunities once government operations normalize and data flows return.
“Patience pays,” Reid adds. “When liquidity thins out and politics dominate headlines, over-trading becomes the real risk.”
The Bigger Picture
The U.S. shutdown is another reminder that markets move on confidence as much as on numbers.
Even without major data releases, perception drives momentum and for now, the perception is uncertainty.
Whether the dollar remains firm or gives back ground will depend less on Washington politics and more on how quickly transparency returns to the economy.
Until then, traders should expect a cautious, range-bound market where headlines, not fundamentals, set the tone.
