Shutdown Triggers Safety Trades. The Dollar Isn’t One of Them.

The first government shutdown since 2019 went into effect last night. It could last a while. (AFP via Getty Images)

Key Points

• The U.S. government shutdown, the fourth under President Trump, is driving investors into safe-haven assets.
• Gold futures reached a record high of $3,900 an ounce, extending its annual gain to approximately 48%.
• The dollar is down 0.3%, with the U.S. Dollar Index at 97.52, while the Japanese yen rose 1.7% against it.

The U.S. government shutdown is driving investors into safe-haven assets in early Wednesday trading, but the dollar isn’t one of them, and that could have big implications for the greenback’s performance heading into the final months of the year.

Lawmakers failed to reach a spending agreement to keep the government running past its midnight deadline, triggering the first federal shutdown in more than six years, and the fourth under the leadership of President Donald Trump.

The result was largely anticipated, following weeks of bitter negotiations and increasingly personal statements between senior Republican and Democratic officials, but markets are still in retreat heading into the opening day of what could be an extended closure of a host of federal government operations.

That retreat is driving cash into assets traditionally seen as a safeguard against market turmoil and store of current value. Gold futures prices topped $3,900 an ounce in overnight trading, a fresh record high, while spot prices hit a new all-time peak of $3,895.38, extending the bullion’s annual gain to around 48%.

The dollar, however, is down 0.3% on the session, with the U.S. Dollar Index last marked at 97.52. It’s also fallen more than 1% over the past five days.

Curiously, the Japanese yen has been the biggest beneficiary of safe-haven flows in the currency market this past week, rising around 1.7% against the greenback. It’s overnight gain was also boosted by better-than-expected manufacturing and capital spending data.

The dollar’s broader fundamentals, beyond its now-tested status as a safe-haven, are also looking weak.

Trump has threatened to use the government shutdown to fire thousands of federal employees, adding to already-evident weakness in the job market and a pullback in consumer confidence.

“A government shutdown will feed into those trends—especially if president Trump follows through with threats to fire and not just furlough nonessential government staff,” said ING’s global head of markets Chris Turner.

The Bureau of Labor Statistics, meanwhile, won’t be releasing labor market updates on Thursday or Friday, should the shutdown continue.

That’s likely to allow “rumor and unreliable survey evidence to gain influence over markets,” according to UBS economist Paul Donovan, around what is expected to be the key element of the Federal Reserve’s October interest-rate decision.

The White House’s withdrawal of its nominee to lead the BLS, E.J. Antoni, also leaves the technocratic agency further adrift as it grapples with political criticism and budget cuts.

Dollar weakness, however, could end up supporting U.S. stocks. Data from Apollo Global suggests S&P 500 companies generate around 41% of their total revenue from outside the U.S. and stronger foreign currencies translate into more dollars from each sale.

“A weak dollar has historically provided impressive tailwinds for earnings growth from large, multinational U.S. companies,” said Wisdom Tree senior associate for investment strategy Brian Manby.

“When the dollar weakened over any given six-month interval, S&P 500 earnings historically grew nearly 6%, on average, in the subsequent six months,” he added. “This is nearly 2% greater than the 4% average growth observed across all periods of strengthening and weakening in our data history.”

Still, even with stocks trading near all-time highs, and the S&P 500 powering to a 2025 gain of around 14%, recession risks in the world’s biggest economy are starting to gather, according to Saxo Bank’s global head of macro strategy John Hardy.

That’s likely to stoke further Fed rate cuts, which lower the value of the dollar on foreign exchange markets. At the same time, U.S. government tariff and trade policy is likely to mean that “major economic players will recycle less of their capital into the U.S. economy, including stocks and Treasuries,” he added.

“The dollar will remain the most important currency, but it will be less important than before,” Hardy said.

Write to Martin Baccardax at martin.baccardax@barrons.com