The dollar index, which measures the greenback’s strength against a basket of six currencies, rose 0.5% to 98.616, its highest level since Aug 27, as US President Donald Trump threatened to carry out mass firings of federal workers during the standoff.
“With no resolution to the government shutdown in sight, sentiment in financial markets deteriorated,” analysts from Westpac wrote in a research report.
With the shutdown entering its second week, the probability of an end to the shutdown within the next week stands at 26%, according to the betting site Polymarket.
The yield on benchmark 10-year Treasury bond edged up to 4.1307% compared with its US close of 4.127% on Tuesday.
The Federal Reserve is still widely expected to lower interest rates later this month, with Fed funds futures implying a 94.6% probability of a 25-basis-point cut, according to the CME Group’s FedWatch tool.
Precious metals markets recorded fresh highs as investors sought safe havens, with US gold futures breaching the US$4,000 per ounce milestone on Tuesday.
“Uncertainty about the global economy is one of the main drivers, and the US government shutdown isn’t exactly helping sentiment either,” analysts from ING wrote in a research note.
Against the yen, the dollar was trading at ¥152.205, up 0.2% from late US levels and hovering near the strongest level since February, as investors weigh up the impact of Sanae Takaichi’s economic policy settings.
Takaichi, who surprised markets by winning the ruling party’s leadership election over the weekend to become Japan’s next prime minister, has left investors wondering whether the protege of the late Shinzo Abe could usher in similar stimulus policies that may boost stocks but leave the yen fragile.
The kiwi traded at US$0.5801, little changed before the Reserve Bank of New Zealand’s policy decision later in the day. The central bank is widely expected to ease monetary policy, but markets are split on whether it will cut by 25 basis points or 50 basis points to revive a weakened economy.
The Australian dollar was unchanged at US$0.65836.
The euro stood at US$1.1655, steady so far in Asia, while sterling was at US$1.3429, up 0.1%.
The offshore yuan fetched 7.1469 yuan per dollar, trading flat compared with the previous session.