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Dollar shorts get louder as shutdown continues

Traders on the floor of the New York Stock Exchange.
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Investors should bet against the dollar, currency strategists say as the U.S. government shutdown entered its second day on Wednesday.

Michael Every, head of financial markets research of Asia-Pacific at Rabobank, suggested that investors looking for a short-term trade should short the dollar against everything.

"That would definitely be the attitude to take," he told CNBC Wednesday. "We just want some kind of indication of how long it's going to be until we return to normalcy. Is it going to be a few days or a few weeks?"

The White House ordered federal departments to execute shutdown plans on Tuesday, leaving nearly 800,000 people locked out of work, after Democrats and Republicans failed to agree on a spending bill before Monday's midnight deadline.

(Read More: Ex-Treasury official: Stalemate could trigger US recession)

It's uncertain when the standoff could come to an end but the dispute raises concerns over the looming debt ceiling - the government's authority to borrow - which has to be raised before October 17 if the government is to avoid a debt default.

U.S. manufacturing data meant the dollar index was relatively mixed on Tuesday despite lawmakers continuing to search for a compromise on the budget. It sank to a near eight-month low of 79.864 but stood at 80.172 on Wednesday morning. In contrast, the dollar index rose to 84.753 back in July when a nod towards the end of the Federal Reserve's bond-buying program gave U.S. investors an incentive to bring their money home.

But despite Tuesday's tick upwards, many analysts see this as the calm before the storm.

(Read More: Forget theshutdown—Debt ceiling time bomb looms)

"(The) dollar is going to be spanked into the long-grass if this continues. And rightly so," said Bill Balin, a senior fixed income broker at Mint Partners said in a research note on Monday. Clifford Bennett, chief economist at financial services firm White Crane Group, agreed saying in his own research note that the U.S. dollar will decline and keep falling.

Short US dollar against everything: Pro

Kit Juckes, global head of foreign exchange strategy at Societe Generale believes that investors should hold sterling until the shutdown ends but said that the dollar could "snap back sharply" if the impasse doesn't take more than a couple of weeks.

(Read More: US Treasury starts last steps to keep borrowing authority)

Meanwhile, Every told CNBC that the more traditional trades against the U.S. dollar would be the Swiss franc and even the Japanese yen, which has depreciated significantly so far this year. Forex strategists at Nomura said in a note that it's looking at opportunities in and selected emerging market currencies against the dollar.

"We are not ready to re-initiate broader long USD exposure in G10 given that any normalization of policy by the Fed seems to be postponed, and given that the data picture remains rather mixed," the bank said.

By's Matt Clinch. Follow him on Twitter