Contrary to typical risk-off behavior, a financial shock originating in the US would likely be positive for the EUR/USD exchange rate. This is because it creates more room for the US Federal Reserve to reprice its policy downwards and can trigger repatriation flows out of US equities.

The dollar initially weathered the U.S. government shutdown. However, with the FAA now actively canceling flights, the negative GDP impact is becoming more tangible and less likely to be recovered quickly, increasing downside risk for the currency.

While furloughed federal employees are typically guaranteed back pay after a shutdown, government contractors are often not. These individuals, who perform similar work without the same protections, face a permanent loss of income, highlighting a significant and often overlooked inequity in how shutdown risks are distributed.

Shutdowns halt the release of key data like jobs reports and inflation figures. This obstructs the Federal Reserve's ability to make informed interest rate decisions, creating market uncertainty. It also delays Social Security COLA calculations, impacting millions of retirees who rely on that data.

The absence of key data releases like non-farm payrolls during a government shutdown reduces market-moving catalysts. This artificially lowers volatility, creating a stable environment conducive to running carry trades and maintaining existing positions like dollar shorts, contrary to expectations of increased uncertainty.

A government can artificially inflate its jobs numbers and GDP by going on a hiring spree for bureaucratic roles. This growth is illusory, or "phantom," as it's funded by printing money and doesn't contribute to the productive economy. It creates positive short-term metrics but fosters long-term inefficiency.

Fed Chair Powell highlighted that annual benchmark revisions to labor data could reveal that the U.S. economy is already shedding jobs, contrary to initial reports. This statistical nuance, creating a "curious balance" with a stable unemployment rate, makes the Fed more inclined to cut rates to manage this underlying uncertainty.

Including government employment in GDP calculations is a form of double-counting tax revenue that masks the true health of the private sector. A major reduction in federal workers would reveal a startlingly low real growth rate, exposing decades of underlying economic stagnation.

The US dollar's rally has a natural ceiling because the government shutdown is withholding crucial growth and labor market data. Without this data, markets lack the conviction to push the dollar significantly higher, making the trend self-limiting.