In a fluctuating currency market on Tuesday, the U.S. dollar experienced gains against both safe-haven assets and growth-sensitive currencies, as investors adopted a more cautious stance amid ongoing concerns surrounding the U.S. government shutdown. The dollar rose early in Asian trading, pushing the Japanese yen to its weakest position since February. Meanwhile, the risk-sensitive Australian dollar managed to maintain its value against the greenback.
Recent trading patterns have shown an increase in the value of risk-sensitive currencies like the Australian dollar and British pound. This uptick correlates with a softening of safe-haven currencies such as the yen, as market optimism regarding a quick resolution to the government shutdown has prompted a greater appetite for risk. Analysts suggest that a compromise reached by the U.S. Senate on Monday, designed to restore funding for federal agencies, could lead to the end of the shutdown in the coming days. This plan effectively stalls President Trump’s agenda to reduce the federal workforce.
The resolution of the shutdown is expected to clarify the trajectory of the U.S. economy and influence Federal Reserve policymaking. Isabelle Mateos y Lago, the group chief economist at BNP Paribas, expressed confidence that the economy remains stable and inflation is being managed at moderate levels. She anticipates that these factors could lead the Fed to consider a 25 basis point cut in interest rates by December, though the approach will remain cautious going into 2026. Despite this optimistic outlook, she emphasized the need to closely monitor economic data as it becomes available.
The proposed deal to end the shutdown is set to be sent to the House, with Speaker Mike Johnson aiming for a swift passage before sending it to President Trump for final approval. Analysts, however, caution that market dynamics may experience fluctuations in the coming days. Francesco Pesole, a forex strategist at ING, noted that while hopes for a resolution to the shutdown could reduce negative growth expectations, the forthcoming economic data releases from the U.S. pose significant risks to the dollar.
The euro remained relatively stable against the dollar, trading at approximately $1.1555. Thierry Wizman, a global forex and rates strategist at Macquarie Group, remarked that concluding the shutdown would likely prevent a more pronounced slowdown in GDP and corporate earnings.
In other currency movements, the British pound dipped 0.40% to $1.3126 following data that indicated a considerable cooling in Britain’s labor market during the third quarter. The dollar also rose by 0.10%, reaching 154.28 against the yen after briefly peaking at 154.495, a high not seen since February. The yen is facing increased pressure as Japan’s newly appointed Prime Minister Sanae Takaichi advocated for a cautious approach to interest rate hikes, contrasting with the Federal Reserve’s more careful stance on rate cuts.
The Australian dollar saw a slight reversal, with the dollar decreasing by 0.25% to 0.6520, halting a two-day increase. The Swiss franc continued its upward trend, poised for a fourth consecutive daily rise, following President Trump’s announcement that the U.S. is negotiating with Switzerland to reduce the existing 39% tariff rate, leading the Swiss currency to increase by 0.15% to 0.8035.
