Dollar stumbles as Immigration Crisis Threatens US Government Shutdown

The US Dollar is facing acute selling pressure as a domestic political crisis in Minnesota threatens to derail federal budget negotiations. A deadly shooting of a US citizen by immigration enforcement agents has transformed into a major legislative roadblock, with Senate Majority Leader Chuck Schumer threatening to freeze funding for the Department of Homeland Security (DHS).

A “Political Gamble” with Market Consequences

The incident, which marks the second civilian death this month involving federal agents in Minneapolis, has hardened partisan lines ahead of the January 30 budget deadline.

• Democrats are demanding a complete overhaul of ICE and CBP protocols.
• Republicans are fractured; the moderate wing and “gun rights” advocates are unsettled by the shooting of a lawful gun owner, while the administration doubles down on enforcement as a key 2026 election platform.

Markets hate uncertainty, and the prospect of a partial government shutdown is weighing heavily on the Greenback. “The paralysis in Washington is stripping the Dollar of its yield advantage appeal,” notes one macro strategist.

Impact on FX Majors

The political dysfunction is acting as a force multiplier for Dollar bears, already emboldened by the Federal Reserve's likely pause on interest rates this week.

• EUR/USD has seen inflows as capital flees US political risk.
• GBP/USD is holding high ground despite UK domestic issues (see separate report).

Investors should expect elevated volatility in USD pairs as the budget deadline approaches, with the potential for further downside if a Continuing Resolution (CR) is not passed by the weekend.