The US federal government is experiencing a partial shutdown as a result of the failure to pass budget appropriations to begin the new fiscal year. The president threatened not only to impose mandatory furloughs on many “non-essential” government employees, but to dismiss them permanently. It is noted that as of yesterday, nearly 150,000 federal employees had accepted the government’s financial settlement offer to terminate their services.

The longest government shutdown in this recurring political drama lasted 35 days during former President Donald Trump’s first term. Concerns are rising that this current shutdown could also extend for a long period. In the foreign exchange markets, the US dollar appeared to be moving in a narrow and mixed range, regaining some stability in late European trading after initially facing a wave of selling. The US dollar also shows relative strength against most emerging market currencies.

In contrast, the rise of the Japanese yen, which has been the strongest among G10 currencies in recent days, put pressure on Japanese equities. But other Asia-Pacific markets moved higher, with Australia representing the main exception today, while markets in China and Hong Kong remained closed for the national holiday. In Europe, the Stoxx 600 index rose for the fourth consecutive session, marking its longest winning streak since last May.

US Dollar

After three days of decline, the US dollar index reached the 38.2% retracement level of the rally following the Federal Reserve meeting, at 97.70 points.

The 50% retracement is located near 97.40 points, which the index approached today, while the 61.8% retracement is positioned slightly below 97.15 points. Forecasts suggest that the 97.70–97.80 area may form a near-term ceiling for the index. With large parts of the federal government shut down, reliance on private sector data is increasing.

Economic Data

The Mortgage Bankers Association will release its weekly data on mortgage applications, while the final reading of the September manufacturing PMI, the ISM manufacturing index, and auto sales figures will also be released, all from non-governmental sources. Most likely, the private-sector jobs report from ADP is the most important today, as it has proven more accurate in predicting Bureau of Labor Statistics (BLS) results than economists’ forecasts.

In the first eight months of the year, ADP estimated that the US private sector added an average of 80.4 thousand jobs per month. With revisions, the BLS estimated a closer average of 74 thousand jobs. In 2024, the BLS estimated that the private sector created about 130 thousand jobs per month on average, while ADP estimated the number at more than 144 thousand jobs. Auto sales data are expected to be released gradually throughout the day.

Bloomberg’s median survey forecast points to an annualized pace of 16.2 million vehicles. As of August, the average stood at 16.26 million, compared to 15.52 million vehicles during the first eight months of 2024.

Gold prices rose in the European market on Wednesday, extending gains for the fifth consecutive session, continuing to smash records and coming very close to reaching the $3,900 per ounce barrier for the first time in history, supported by the sharp decline of the US dollar after the government shutdown came into effect in the United States.

In addition, expectations that the Federal Reserve may cut interest rates twice before the end of this year provided support. To re-price those expectations, markets are awaiting the release of more key data on the state of the US labor market, which the Federal Reserve relies on heavily in determining its monetary tools.

Price Overview

• Gold prices today: Gold rose by 0.65% to ($3,884.17) as an all-time high, from the opening level of ($3,859.01), with a low of ($3,853.48).

• At Tuesday’s settlement, gold prices recorded a gain of 0.7%, marking the fourth consecutive daily increase, driven by concerns over the US government shutdown.

Massive Monthly Gain

Over the course of September trading, gold prices rose by about 12%, marking the second consecutive monthly gain and the largest monthly increase since August 2011.

These monthly gains, the biggest in 14 years, are attributed to strong safe-haven demand amid financial stability concerns in Europe, the UK, and the US, in addition to escalating global geopolitical tensions and expectations of US interest rate cuts.

US Dollar

The US dollar index fell on Wednesday by 0.45%, deepening its losses for the fourth consecutive session, hitting a one-week low at 97.48 points, reflecting continued weakness of the US currency against a basket of major currencies.

This decline came after the US government shut down after midnight, following Congress’ failure to pass funding bills, as Trump, the Republican, and the Democratic parties were unable to reach a last-minute temporary deal.

President Donald Trump warned Democrats in Congress on Tuesday that allowing a federal government shutdown would enable his administration to take “irreversible” actions, including shutting down key programs.

US Interest Rates

• Tuesday’s job openings report indicated a slight increase in vacancies in August, alongside a slowdown in hiring, pointing to weakening labor market strength.

• Following the data and according to CME’s FedWatch tool: pricing of probabilities for a 25-basis-point rate cut at the October meeting rose from 90% to 95%, while pricing of probabilities for holding rates unchanged fell from 10% to 5%.

• To re-price those expectations, markets are awaiting further key US labor market data later today with private payrolls, Thursday’s weekly jobless claims, and Friday’s September non-farm payrolls report.

Outlook for Gold

• Nicholas Frappell, global head of markets at ABC Refinery, said gold is benefiting from “concerns related to a weaker dollar, the political situation tied to the US government shutdown crisis, and broader geopolitical uncertainty.”

• Michael Hsueh, precious metals analyst at Deutsche Bank, said with reference to the rise in gold prices: “It is difficult to predict an immediate end, and we expect further strength in the near term.”

SPDR Fund

Gold holdings with SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose yesterday by 1.15 metric tons, marking the third consecutive daily increase, bringing the total to 1,012.88 metric tons, the highest since July 15, 2022.

The euro rose in the European market on Wednesday against a basket of global currencies, extending its gains for the fourth consecutive day against the US dollar, recording its highest level in a week, supported by the decline of the US currency, hurt by the government shutdown entering into effect in the United States.

The European Central Bank, during its latest meeting, expressed its belief that there is no need for further monetary easing, which led to a decline in the odds of a European interest rate cut before the end of this year.

In order to reprice those odds, investors are awaiting later today the release of the key inflation data in Europe for September, which will heavily influence the path of European monetary easing.

Price Overview

•Euro exchange rate today: The euro rose against the dollar by about 0.4% to ($1.1777), the highest since September 24, from today’s opening price at ($1.1733), and recorded the lowest level at ($1.1720).

•The euro ended Tuesday’s trading up by less than 0.1% against the dollar, in the third consecutive daily gain, after inflation data in Germany came in higher than expected.

US Dollar

The dollar index fell on Wednesday by 0.45%, deepening its losses for the fourth consecutive session, recording its lowest level in a week at 97.48 points, reflecting the continued decline of the US currency against a basket of global currencies.

This decline came after the US government shut down after midnight, following Congress’ failure to pass funding bills, after Trump and the Republican and Democratic parties failed to reach a last-minute temporary agreement.

US President Donald Trump warned Democrats in Congress on Tuesday that allowing a federal government shutdown would enable his administration to take “irreversible” actions, including shutting down important programs for them.

The US Departments of Labor and Commerce announced that their statistical agencies would halt data releases in the event of a partial shutdown. This includes the release of the non-farm payrolls data scheduled for Friday, which markets consider a key factor in determining whether the Federal Reserve is likely to cut interest rates by the end of this month.

European Interest Rate

•Sources: Policymakers at the European Central Bank believe that no further interest rate cuts are needed to achieve a 2% inflation rate, despite new economic forecasts indicating a decline in the rate over the next two years.

•Sources: Unless the eurozone faces another major economic shock, borrowing costs are expected to remain at their current levels for some time.

•Money market pricing for odds of the European Central Bank cutting European interest rates by about 25 basis points in October is currently stable around 10%.

•Traders have reduced their bets on further monetary easing by the European Central Bank, pointing to the end of the rate-cutting cycle for this year.

Inflation in Europe

In order to reprice the above odds, investors are awaiting later today the release of the key inflation data in Europe for September, which will show to what extent inflationary pressures have weighed on monetary policymakers at the European Central Bank.

By 10:00 GMT, the annual consumer price index in Europe will be released, with market expectations pointing to a rise of 2.2% in September, compared to a 2.0% increase in August, and in the core value, an expected rise of 2.3%, the same as the previous reading.

Forecast for the Euro Performance

•We at Economies.com expect: If the inflation data comes in hotter than currently expected in markets, the odds of a European interest rate cut in the remainder of this year will decline, which will support euro gains in the foreign exchange market.

The Japanese yen rose in the Asian market on Wednesday against a basket of major and minor currencies, extending its gains for the fourth consecutive day against the US dollar, recording its highest level in two weeks, supported by the continued decline of the US currency, hurt by financial stability concerns in the United States due to the government shutdown.

The stance of Bank of Japan officials has become more hawkish in recent days, which clearly strengthens the odds of a Japanese interest rate hike before the end of this year, and in order to reassess those odds investors are awaiting more decisive data on developments in the world’s fourth-largest economy.

Price Overview

•The yen exchange rate today: The dollar fell against the yen by 0.25% to (147.46¥), the lowest since September 19, from today’s opening price at (147.80¥), and recorded the highest level at (148.22¥).

•The yen ended Tuesday’s trading up by 0.5% against the dollar, in the third consecutive daily loss, with continued buying of the currency as a safe haven.

US Dollar

The dollar index fell on Wednesday by 0.25%, deepening its losses for the fourth consecutive session, recording its lowest level in a week at 97.58 points, reflecting the continued decline of the US currency against a basket of global currencies.

This decline came after the US government shut down after midnight, following Congress’ failure to pass funding bills, after Trump and the Republican and Democratic parties failed to reach a last-minute temporary agreement.

US President Donald Trump warned Democrats in Congress on Tuesday that allowing a federal government shutdown would enable his administration to take “irreversible” actions, including shutting down important programs for them.

The US Departments of Labor and Commerce announced that their statistical agencies would halt data releases in the event of a partial shutdown. This includes the release of the non-farm payrolls data scheduled for Friday, which markets consider a key factor in determining whether the Federal Reserve is likely to cut interest rates by the end of this month.

Japanese Interest Rate

•The Tankan survey showed an improvement in confidence among large Japanese manufacturers for the second consecutive quarter, and companies maintained their optimistic spending plans.

•The stance of Bank of Japan officials has become more hawkish in recent days, including Asahi Noguchi, the former board member and supporter of quantitative easing.

•Noguchi said on Monday that the need to tighten monetary policy is increasing “more than ever.”

•Deputy Governor of the Bank of Japan, Shinichi Uchida, and Governor Kazuo Ueda are scheduled to give speeches on Thursday and Friday, respectively.

•Traders currently price in a 40% chance of a quarter-point interest rate hike in Japan on October 30, according to London Stock Exchange data.

•In order to reprice those odds, investors are awaiting the release of more data on inflation, unemployment, and wages in Japan.