USD Holds Firm Amid Shutdown Fog — But Cracks Could Be Forming.

  • US Shutdown Lingers: With key data paused, markets will focus on macro headlines and Fed minutes for cues.

  • Fed in Focus: A dovish tone in Wednesday’s minutes could pressure the USD, though resilience remains strong.

  • Japan Surprise: Takaichi’s election sparks yen weakness and equity gains, but USD/JPY upside looks limited.

  • Euro Rangebound: EUR/USD likely to remain between 1.168–1.176 amid muted eurozone data and steady ECB stance.

  • Sterling Balancing Act: GBP supported by BoE hawkishness but constrained by fiscal worries and US political uncertainty.

USD: Resilient, Yet Vulnerable

The ongoing US government shutdown shows little sign of resolution, delaying key data releases and leaving traders navigating another skewed week in FX markets. With official statistics on hold, markets are likely to latch onto macro headlines for direction.

Fed rate expectations for December sit around 46bp — just shy of 50bp — in line with the median Dot Plot. The key event this week is Wednesday’s release of the Fed’s September meeting minutes. Markets will be parsing the details for signs that Chair Powell’s cautious stance on further cuts is widely shared. Any dovish tilt could see the dollar soften.

While the shutdown threatens to weigh on the USD the longer it persists, the greenback’s resilience remains notable. Market sentiment suggests investors now demand significantly weaker US data before increasing USD shorts. This may limit near-term volatility even as downside risks persist, with domestic stories in other economies likely to dominate the week’s narrative.

In Japan, the unexpected election of Sanae Takaichi as prime minister has reignited reflationary expectations, driving a 2% drop in the yen and boosting the Nikkei by 5%. Yet, we see limited room for further USD/JPY gains. A weaker yen risks stoking domestic inflation and diplomatic tension with Washington, making a sustained rally above 150.0 unlikely.

A packed calendar of central bank commentary looms. Powell headlines Thursday’s Fed Community Bank event, while key policymakers from the ECB, BoE, Norges Bank, and RBA will also speak throughout the week. The RBNZ meets Wednesday — a 25bp rate cut is widely expected.

EUR: Still Stuck in Neutral

EUR/USD remains rangebound, failing to capitalize on US weakness or cross the 1.180 mark. Despite the shutdown and potential dovish signals from the Fed, traders appear reluctant to sell dollars aggressively.

We expect continued consolidation between 1.168–1.176 in the near term. With no major eurozone data due, attention shifts to ECB speakers, including President Christine Lagarde today. Yet, with inflation cooling and policy steady, no fresh policy guidance is anticipated.

GBP: Supported, But Cautiously So

Sterling saw mixed trading last week. Early gains came as BoE policymakers Ramsden and Mann warned of persistent inflation and the need to hold rates longer. However, concerns over the UK’s fiscal health capped momentum. Even with upward revisions to Q2 GDP, expectations of tax hikes in Chancellor Rachel Reeves’ autumn budget weigh on sentiment.

GBP/USD’s near-term trajectory hinges on developments in Washington.

  • If the US government reopens, the long-delayed non-farm payrolls report could trigger volatility — especially if it points to labour market weakness.

  • If the shutdown drags on, the lack of US data may continue to undermine the dollar, offering passive support to Sterling.

With limited UK data this week, the pound’s direction will likely mirror broader risk sentiment, underpinned by the BoE’s hawkish undertones.

*All rates shown are indicative of interbank rates and should only be used for indication purposes only. It is important to note that foreign exchange rates fluctuate and that rates may vary depending on the amount and the base currency that is purchased or sold. Rates are correct as of 8:00am UK time. CentralFX are not responsible for the rates shown.