Investors will continue to demand a risk premium on the U.S. dollar heading into 2014, though some remain optimistic that Washington may reach a lasting solution to the debt impasse early next year, restoring some confidence to the battered greenback.
This month's bruising political standoff over the U.S. budget combined with the acrimonious debate over extending the U.S. government's $16.7 trillion debt limit shut down non-essential government services and hit growth expectations for this quarter.
(Read more: Dollar braces for dovish Fed, gloomy US data)
Those heightened perceptions of sovereign risk, which tarnished the dollar's reputation as the world's reserve currency and boosted the appeal of the British pound, Australian dollar and the once-ailing euro, said Sean Callow, Senior Currency Strategist, Westpac Bank.
And while U.S. political tail risks haven't "undermined the dominance of the dollar completely, it has still encouraged diversification into other currencies such as [the euro]," said Kathy Lien, managing director at BK Asset Management.