USD faces pressure as government shutdown risk spikes on funding bill crisis

The US dollar index has weakened 0.2% to 106.50 as political uncertainty grips markets following Democrats' withdrawal of support for the government funding bill. The dramatic shift comes after the shooting death of civilian Alex Pretti by federal agents, transforming shutdown probability from 10% to over 60% according to betting markets. Major pairs are reacting with EUR/USD gaining 25 pips to 1.0875, while safe-haven flows boost CHF and JPY against the greenback. The funding impasse threatens to disrupt government operations and economic data releases, potentially delaying key reports that guide Federal Reserve policy decisions. Technical indicators show USD/JPY testing support at 155.20, with a break below potentially accelerating yen strength. Traders are positioning defensively ahead of potential volatility, with implied volatility measures rising across major currency pairs as the deadline approaches without resolution.