The partial shutdown of the US government — the first since late 2018 — has triggered ripples across global markets, unsettling investors, pressuring the dollar, and rekindling interest in traditional safe-haven assets such as gold and the yen.
The fallout has also drawn renewed attention to dollar-pegged currencies, such as the UAE dirham, which may experience short-term fluctuations as the US dollar weakens.
The shutdown followed a bitter standoff in Congress after lawmakers failed to reach a last-minute agreement on a funding bill. The impasse has forced around 800,000 federal employees — or nearly 40 per cent of the workforce — into unpaid leave while others deemed “essential,” such as air traffic controllers and Transportation Security Administration staff, continue working without pay. The disruption is expected to cause widespread inconvenience for Americans, ranging from travel delays and slower passport processing to the suspension of services at national parks and museums.
For financial markets, the consequences are more nuanced. Historically, shutdowns have had limited direct economic impact, but their psychological effect on investor confidence can be far-reaching. Analysts say the political dysfunction in Washington reinforces doubts about fiscal management at a time when the US economy is already contending with slower growth, rising debt, and expectations of further rate cuts by the Federal Reserve.
“The shutdown pressures the dollar while adding shine to gold,” said Ipek Ozkardeskaya, senior analyst at Swissquote Bank. “The US 10-year yield has edged lower as investors sought safety in Treasuries, while the dollar index has softened amid waning appetite for the greenback.” She noted that the yen and Swiss franc have attracted safe-haven inflows, while the euro and pound sterling are gaining ground against the dollar.
The dirham, which is pegged to the US dollar at a fixed rate of Dh3.6725, remains firmly stable by policy, but any sustained weakness in the dollar’s global value translates into imported inflation and higher relative purchasing power of currencies like the euro and pound in the UAE. Currency experts say that while the peg ensures macroeconomic stability, fluctuations in the dollar’s external value subtly affect the cost of imported goods, tourism flows, and remittances.
Meanwhile, gold has emerged as the biggest beneficiary of the turmoil. Prices have surged as investors flee to safety amid political uncertainty, geopolitical tension, and expectations of a softer monetary stance by the Fed. Gold has gained momentum through 2025, buoyed by robust central bank buying and China’s push to promote gold and the yuan as alternatives to the dollar in trade settlements. Reports suggest Beijing has encouraged partners to convert trade surpluses into gold stored in Shanghai — a move that could absorb as much as 15 to 20 per cent of annual global gold output.
The precious metal’s stellar rally has also spurred a boom in mining stocks. London-listed Fresnillo’s share price has jumped more than 300 per cent since January, while Zijin Gold International’s Hong Kong IPO soared 68 per cent on debut, valuing the firm at nearly $40 billion. “This wave of gold enthusiasm resembles a tech-stock surge,” said one market strategist. “It shows how investors are recalibrating toward hard assets amid a fragile policy landscape.”
For equities, the short-term reaction is less gloomy. The S&P 500 has historically gained during three of the last four US shutdowns, including a 10 per cent rise during the 2018–2019 standoff that coincided with a Federal Reserve pivot. This time, investors are eyeing delayed US economic data releases — including the key jobs report — as the most immediate casualty.
“The bigger inconvenience will be missing data that markets rely on to gauge policy direction,” said Ozkardeskaya. “The ADP private payroll report will fill part of that gap, but the absence of official numbers could keep markets in suspense.”
Since 1976, the US has endured around 20 shutdowns, most of which have lasted less than a week. But each episode chips away at confidence in Washington’s ability to manage its fiscal affairs. The current deadlock underscores growing political polarisation that could cloud America’s economic outlook — and by extension, the global financial system built around the dollar.
Currency experts believe that for the UAE and other dollar-pegged economies, the stability of the greenback remains central. “But with each US political standoff and debt scare, investors are reminded that even the world’s reserve currency is not immune to uncertainty.”
