The U.S. dollar experienced steady trading on Tuesday as investors closely monitored the impending government shutdown, which threatens to disrupt the release of the monthly jobs report scheduled for later this week. The deadline for a congressional agreement on temporary funding looms, with government operations set to halt at midnight ET on Tuesday if an agreement between Republicans and Democrats is not reached.
The Labor and Commerce departments indicated that they would halt the dissemination of economic data during a partial shutdown, which includes the critical employment figures for September. The upcoming payrolls report is essential for the Federal Reserve’s decision-making process, and any delay could hinder the central bank’s assessment of the labor market health.
Traders are currently anticipating 42 basis points of Fed easing by December and a total of 104 basis points by the end of 2026, which is about 25 basis points lower than levels noted in mid-September. Market analysts suggest that a brief shutdown may not significantly influence Fed decisions; however, a prolonged shutdown exceeding two weeks could heighten growth risks and increase the likelihood of a more accommodative monetary policy from the Fed.
Political instability in the U.S. has contributed to downward pressure on the dollar. The dollar index, which has seen nearly a 10% decline this year, was recorded down 0.1% at 97.785. The dollar was particularly weak against traditional safe-haven currencies, such as the Japanese yen and the Swiss franc. The yen, initially weak overnight, traded at 148.02 yen per dollar, marking a 0.4% decline for the dollar against it. Market participants noted a 60% probability of a rate hike by the Bank of Japan in December, as recent discussions indicated the potential for a near-term increase.
In light of the uncertainty surrounding the U.S. government shutdown, strategists from MUFG highlighted that selling the dollar against the yen could become a favored trading strategy. The dollar-yen pair has risen 0.7% in October but has experienced a nearly 6% drop year-to-date, with investors banking on a gradual rise in Japanese interest rates while U.S. rates taper off.
The Swiss franc strengthened, resulting in a 0.2% drop for the dollar to 0.796 francs, while the dollar remained stable against the euro at 0.9347 and essentially unchanged against the pound. In contrast, the Australian dollar appreciated by 0.4% to $0.6604 after the Reserve Bank of Australia maintained interest rates steady, citing potential upward pressures on inflation and ongoing economic uncertainty.
In Europe, the British pound remained resilient, disregarding data indicating that the UK economy expanded by 0.3% from April to June while the current account deficit widened significantly. The current account deficit rose to 28.939 billion pounds, surpassing forecasts and representing 3.8% of GDP compared to 2.8% in the previous quarter. The pound was last noted up 0.1% at $1.3448 and slightly weaker against the euro, which increased by 0.1% to 87.34 pence. Meanwhile, the euro gained slightly against the dollar, trading at $1.1742.
