Why Is the US Dollar Strengthening Amidst the Shutdown and the Delay in the Release of Economic Data?
Despite the US government shutdown and the delay in the release of many official economic data, the US dollar continues to strengthen. This situation may seem paradoxical, but there are a number of fundamental and psychological factors that explain this phenomenon.
1. Safe Haven Factor: Investors Flock to the Dollar
Amid global political, economic, and geopolitical uncertainty—including wars in the Middle East and Eastern Europe—global investors continue to view the US dollar as the world's safest asset.
When risk increases, capital flows tend to flow from emerging markets or riskier assets to US dollars and bonds. As a result, demand for the dollar increases even though domestic conditions in the US are less than ideal.
2. Data Limitations Actually Depress Risk Assets
The shutdown prevented important data such as inflation, retail sales, and industrial production from being released on time. This created high market uncertainty, making it difficult for investors to predict the direction of future monetary policy.
In situations like this, market participants prefer to "keep money in dollars" rather than take risks in other assets such as stocks or commodity currencies.
3. Expectations That the Shutdown Will Be Temporary
Most analysts expect this shutdown to be short-lived, as economic and political pressures will force Congress to reach a budget agreement. Assuming the shutdown will end soon, investors believe the US economic fundamentals remain strong in the medium term, thus maintaining a positive view of the dollar.
4. The US Economy's Relative Performance Outperforms Other Countries
Despite the US experiencing political headwinds, the economies of Europe and Japan appear weaker. European PMI data show contraction, while Japan continues to maintain ultra-low interest rates.
This situation widens the bond yield gap between the US and other countries—and increases the dollar's appeal to global investors.
5. Liquidity and Dollar Dominance in the Global Financial System
The dollar remains the world's primary currency for trade and foreign exchange reserves. During a crisis, global demand for dollar liquidity increases, as nearly all international transactions—from oil to gold—are priced in USD.
This phenomenon is often called a "short squeeze on the dollar," when global investors flock to buy dollars to meet liquidity needs.
So, while in theory a shutdown signals economic weakness and fiscal risk, in practice the dollar actually benefits due to its status as a major global currency and a safe haven asset during crises.
Source: Newsmaker.id
