How the government shutdown drama could impact the market

Political risk has the potential to grip the currency market in the near term, according to one foreign exchange strategist with a close eye on Washington this week.

Concerns over a U.S. government shutdown loom. President Donald Trump was said to support a short-term funding bill to prevent such an event, but it faces potential "no" votes. Political unrest could rattle markets into the latter half of the week, said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management. Here are his reasons.

• While U.S. equities are continuing to make record highs, the dollar index has sunk to multiyear lows. The currency is particularly politically sensitive, and its price action is in response to concerns around U.S. policy.

• The government shutdown resolution may indeed fail to pass as tension across political parties remains.

• A further decline in the dollar could be a warning sign of weakness to come in stocks, though this was not evident on Wednesday as stocks ended in positive territory.

Bottom line: Political uncertainty in the U.S. and abroad has the potential to rattle markets this week, according to one currency expert.

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