The dollar fell on Tuesday following softer-than-expected economic data, as investors awaited a likely U.S. government shutdown that could disrupt the release of the monthly nonfarm payrolls report this week.

Government funding expires at midnight on Tuesday (0400 GMT) unless Republicans and Democrats agree to a last-minute interim deal.

"The shutdown is pretty much well-priced in by the market," said Eugene Epstein, head of trading and structured products, North America, at Moneycorp in New Jersey.

"The question is how long the shutdown is going to be - if it's a few days as the market seems to be expecting at the moment, or is it actually going to prolong into something bigger?"

U.S. President Donald Trump warned congressional Democrats on Tuesday that letting the federal government shut down at midnight would allow his administration to take "irreversible" actions including shutting down programs important to them.

The U.S. Labor and Commerce departments said their statistics agencies would halt data releases in the event of a partial shutdown, including closely watched employment data for September.

The payrolls report, due Friday, is crucial for Federal Reserve decision-making, so a delay could generate extra market volatility, as uncertainty among investors increases.

"The logic is that a government shutdown could lead to a more dovish Fed," said Elias Haddad, senior markets strategist at Brown Brothers Harriman in a research note.

"If a shutdown is brief, the Fed will ignore it. However, a prolonged shutdown (more than two weeks), increases the downside risk to growth and raises the likelihood of a more accommodative Fed."

U.S. rate futures are pricing in 45 basis points of easing this year, most likely starting with 25 bp in October, with a strong chance of a second by year-end.

In afternoon trading, the dollar fell 0.5% against the yen to 147.85, extending its decline after a mixed Bureau of Labor Statistics' Job Openings and Labor Turnover Survey, or JOLTS. On the quarter, the dollar rose 2.7%, the best quarterly gains since October 2024.

The report showed U.S. job openings increased marginally in August while hiring declined, consistent with a softening labor market. Job openings, a measure of labor demand, rose 19,000 to 7.227 million by the last day of August.

Hiring fell 114,000 to 5.126 million in August. Layoffs dropped 62,000 to 1.725 million.

The dollar index slid 0.1% to 97.78, but ended the September quarter 1.1% higher, the biggest quarterly advance since January.

The greenback was also weighed down by the Conference Board's consumer confidence index, which dropped 3.6 points to 94.2 this month. Economists polled by Reuters had forecast a drop to 96.0.

Source: Fxstreet