Safe Haven Dollar: What the US Shutdown Means for Currency Markets

The US government remains partially shut down, yet the dollar is holding up, even gaining ground. That may surprise some. But in today’s climate, the greenback is benefiting from a trio of powerful drivers: safe-haven demand, higher inflation expectations, and fading enthusiasm for aggressive Fed rate cuts.

Let’s unpack why this matters, and what it means for clients and advisers navigating FX exposure right now - especially those repatriating USD back into GBP.

Why the Dollar Is Strengthening Amid a Shutdown

1. Safe-haven flows in a volatile world

Global unease - geopolitics, fragile growth, uncertainty in other major economies - is pushing investors toward assets perceived as safe. The US, despite its political gridlock, remains a benchmark among fiscal powerhouses. In a world of uncertainty, the dollar continues to attract capital.

2. Inflation expectations still high

Markets are now pricing inflation in the US up to around 3.4% in forward curves. That keeps real yields relatively elevated, even before rate cuts. The sense that inflation will remain sticky bolsters the dollar’s value versus currencies in regions struggling with disinflation or weak growth.

3. Fed cuts under pressure

The shutdown is muddying economic data release schedules, slowing the flow of timely indicators. Meanwhile, recent voices from the Fed have leaned more cautious. The consensus around multiple, fast rate cuts is softening. In short: the dollar is catching some support from the perception that easing may come more slowly than markets hoped.

Combine those forces, and the dollar is holding firm and even rising in what might otherwise be a risk-off environment.

The FOMC Minutes: A Key Test Tonight

At 19:00 BST today, the September FOMC meeting minutes will be released. These minutes could shift sentiment if they reveal hawkish tilt, dissent over cuts, or uncertainty about inflation trajectories.

If the minutes suggest the Fed remains divided or leery of easing too quickly, the dollar could receive renewed upside. Conversely, if the minutes lean dovish (signalling greater consensus for cuts ahead) the rally might stall, and weaker USD pressure could re-emerge.

In other words: markets may already be pricing in a certain outcome, but tonight’s minutes could provoke a sharper re-pricing.

What It Means for Clients, Corporates & Advisers

High-net-worth individuals

For those transferring large sums, investing abroad, or acquiring international property, this dollar strength matters. A 1-2% shift in USD/GBP or USD/EUR on a £1m transaction is tens of thousands of pounds difference. This is not a time to assume the dollar will weaken. Proactive planning, especially via forward contracts, is now more crucial than ever.

Corporate importers and global businesses

If your business pays for goods, services, or debt in foreign currencies, the dollar’s resilience can squeeze margins. Budget forecasts based on a weaker dollar may be compromised. And when fiscal shocks or policy surprises hit, FX volatility can compound operational stress.

Referral partners

Your clients look to you for foresight, especially in uncertain times. The shutdown and shifting Fed outlook provide a timely reason to bring FX risk into your conversations:

• Encourage clients to stress-test their assumptions under different USD scenarios

• Suggest locking in key payments ahead of volatile windows

• Integrate FX thinking into large cross-border transactions or wealth transfers

By doing so, you reinforce your reputation as a forward-thinking adviser and help clients avoid exposure they hadn’t anticipated.

Strategic Moves to Consider Now

• Use forward contracts to lock in exchange rates for imminent or planned FX flows, insulating clients from intra-day volatility.

• Build scenario analysis around different dollar outcomes (further strength, pullback, volatility), and quantify how each scenario would affect client positions.

• Consider staggered execution of large FX events - breaking up transfers over time can reduce the impact of a mistimed move.

• Watch the FOMC minutes (and subsequent remarks) from Fed members. Sentiment and tone may be the chief drivers of near-term FX moves.

The US shutdown may be a headline risk, but markets are focused on what lies beneath: inflation, central bank policy, and investor confidence. The dollar’s current strength isn’t assured. Its next move could come down to subtle shifts in tone or perception.

If clients or your contacts have upcoming FX exposure, now is the time to bring clarity, protection, and discipline to the conversation. The upside opportunity is there, but so is the downside. Let's walk through it together.