The US dollar steadied on Tuesday ahead of a potential government shutdown that could disrupt the release of this weeks monthly jobs report, while the Australian dollar strengthened after the central bank adopted a cautious stance on inflation.

Investors are focused on the looming shutdown, with federal funding set to expire at midnight Tuesday (04:00 GMT) unless Republicans and Democrats reach a last-minute spending deal.

The US Labor and Commerce Departments said their statistical agencies would halt the release of economic data in the event of a partial shutdown, including Septembers closely watched jobs report. The jobs report is a key input for Federal Reserve policymakers, and any delay could leave the central bank flying blind on labor market conditions.

Currently, traders are pricing in 42 basis points of rate cuts by December and a total of 104 basis points by the end of 2026, about 25 basis points fewer than mid-September levels.

Elias Haddad, senior markets strategist at Brown Brothers Harriman, noted: If the shutdown is short, the Fed will largely ignore it. But a prolonged closure (more than two weeks) adds downside risks to growth and raises the odds of looser monetary policy.

Lee Hardman, currency strategist at MUFG, said the dollar is under pressure due to rising political uncertainty in the US. The dollar index, already down about 10% year-to-date, slipped 0.1% on the day to 97.785.

Losses were most pronounced against traditional safe-haven, low-yield currencies like the yen and Swiss franc.

The yen rebounded from overnight weakness, pushing the dollar down 0.4% to 148.02 yen. Investors digested the Bank of Japans September meeting summary, which showed discussion of a near-term rate hike. Markets now assign a 60% probability of a December move. Analysts at ING suggested shorting USD/JPY could become a popular trade if a US shutdown materializes, noting the pair lost 1.5% during the 20182019 closure.

The Swiss franc also firmed, sending the dollar 0.2% lower to 0.796 franc, while the greenback held steady against the euro at 0.9347 and against the pound.

The Australian dollar rose 0.4% to $0.6604 after the Reserve Bank of Australia left interest rates unchanged, as expected, following three cuts this year. The RBA said recent data suggest Q3 inflation may exceed forecasts, while the economic outlook remains uncertain.

In Europe, the pound shrugged off data showing UK GDP grew 0.3% between April and June, while the current account deficit widened sharply to 28.939 billion ($38.8 billion), equal to 3.8% of GDP versus 2.8% in Q1. Sterling last traded up 0.1% at $1.3448, while slipping slightly against the euro, which rose 0.1% to 87.34 pence. The euro also gained against the dollar to $1.1742.