The dollar faced challenges on Monday as market participants awaited significant U.S. economic data that could shed light on the Federal Reserve’s future interest rate strategy. The potential for a government shutdown in the U.S. also loomed large, drawing attention from investors.
In early Asian trading, currency movements were generally muted, although the dollar retraced some of its gains after finishing the previous week on a stronger note, bolstered by decreased expectations of imminent Fed rate cuts. Specifically, the dollar declined by 0.2% to 149.24 against the yen, following a notable rise of over 1% against the Japanese currency in the prior week. The euro, on the other hand, gained 0.15%, climbing to $1.1717, while the British pound edged up 0.11% to $1.3418.
A major concern among investors was the possibility of a U.S. government shutdown if Congress fails to approve a funding bill before the fiscal year concludes on Tuesday. Should no funding legislation be passed, certain government services would cease on Wednesday, marking the beginning of the 2026 fiscal year. This situation could directly impact the scheduled release of Friday’s crucial nonfarm payrolls report.
Ray Attrill, head of FX research at National Australia Bank, commented on the uncertainty surrounding the nonfarm payrolls release, stating, “I think the assumption will be that if we’re going to have a government shutdown, we won’t have the payrolls numbers. So… how do you trade the non-release of a number? You can’t.” He added that, while the Federal Reserve’s meeting is scheduled for the end of October, there is hope that a potential shutdown would be brief enough that the necessary numbers would still be available before the meeting.
As investors eye Friday’s jobs report, they will also receive key figures on job openings, private payrolls, and the ISM manufacturing PMI, which could provide additional insights into the U.S. economic landscape. Recently released robust economic data has tempered predictions of aggressive Fed rate cuts, with markets currently pricing in approximately 40 basis points of easing by December.
In the wider currency market, the Australian dollar rose 0.15% to $0.6557, while the New Zealand dollar appreciated slightly by 0.07% to $0.5780. Looking ahead, the Reserve Bank of Australia is set to announce its rate decision on Tuesday, with expectations indicating that the central bank will maintain current interest rates.
