U.S. Government Shutdown Impact Analysis: FX and Bond Market Disruption

This analysis is based on the Wall Street Journal report [1] published on November 7, 2025, which highlighted the ongoing U.S. government shutdown’s disruptive impact on financial markets through delayed economic data releases.

The data vacuum has contributed to notable market volatility on November 7, 2025, with major indices showing mixed performance. The S&P 500 declined 0.47% to 6,664.42, NASDAQ fell 0.75% to 22,720.11, while Dow Jones showed relative resilience with a 0.22% decline to 46,693.41 [0]. Sector performance reveals a clear risk-off sentiment, with Technology stocks under significant pressure (-1.31%), while defensive sectors like Utilities (+1.84%) and Financial Services (+1.11%) outperformed [0].

The shutdown has created competing dynamics in currency markets. According to MUFG Research, the absence of U.S. economic data generates two opposing forces: short-term USD support from the lack of weak economic data preventing dollar sell-offs, versus long-term USD weakness risks from extended shutdown duration causing greater economic damage and deteriorating investor sentiment [2].

The Treasury Department has acknowledged that the shutdown “may be contributing to the lack of volatility in financial markets, as key US economic data have been delayed” [3]. More critically, data quality concerns have emerged as “data collection has been limited by the shutdown” [3]. The Treasury Borrowing Advisory Committee specifically highlighted industry focus on “potential implications for the inflation swaps market if multiple CPI prints are missed, which could affect both demand for and secondary market liquidity in TIPS” [3].

The shutdown’s economic impact is substantial, with CBO estimating $7-14 billion in permanent economic losses by end of November 2025 [4]. The human cost affects 730,000 furloughed federal workers without pay and 670,000 working without paychecks [4]. Goldman Sachs projects Q4 2025 GDP growth at just 1%, significantly down from previous 3-4% projections [4].

Beyond timing delays, the shutdown threatens fundamental data quality. The Bureau of Labor Statistics was unable to conduct critical surveys during the shutdown period, potentially compromising the reliability of future economic indicators [4]. The Treasury Department warned that “once the government reopens and delayed data is released, we may see investors and policymakers rapidly update their outlook for the US economy” [3].

With U.S. data unavailable, market attention has shifted to Chinese economic indicators scheduled for November 14, including retail sales (expected 3.0% YoY) and industrial production data [5]. This shift is particularly significant given China’s Q3 2025 GDP growth of 4.8%, the weakest pace in a year, and subdued CPI at 0.3% in September 2025 [5][6].

Users should be aware that several factors may significantly impact market stability:

1. Extended Shutdown Duration:
   Each additional week increases economic damage and compounds data quality issues [2][4]
2. Data Quality Degradation:
   The inability to conduct proper surveys during the shutdown may lead to unreliable economic indicators [3][4]
3. Market Dislocation Risk:
   Multiple missed CPI prints could severely impact TIPS market liquidity and demand [3]

The Federal Reserve’s December 10 meeting faces significant challenges without key economic data. Markets are “closely scrutinizing comments from Fed officials to assess the likelihood of another rate cut being delivered as soon as in December” [2].

Decision-makers should focus on shutdown resolution timelines, Fed official communications for economic guidance, private data alternatives like ISM and ADP reports, and international data releases, particularly China’s economic indicators on November 14 [2][5][6].

The November 13 CPI release remains in jeopardy, preventing proper inflation assessment ahead of the Fed’s December 10 meeting [2]. Historical patterns suggest that even after resolution, data releases will be delayed by about a week to allow processing time [4].

This development raises concerns about market functioning that warrant careful consideration. The combination of data delays and potential quality issues creates an environment where traditional analytical frameworks may be less reliable. Decision-makers should exercise increased caution when interpreting market signals and consider the potential for rapid market adjustments when delayed data is eventually released [3].

With official U.S. data unavailable, markets are increasingly dependent on private sector data sources and international indicators for economic guidance, potentially creating new patterns of market behavior and correlation structures [2][5].