US Govt uncertainty keeps 'Dollar on the defensive' ahead of PMI figures
The uncertainty surrounding the shutdown has kept the dollar on the defensive so far this week, and a mild grind lower in the greenback appears likely the longer the saga continues.
No government shutdown in history has lasted longer than 36 days, and the majority of the twenty funding gaps since 1976 have been done and dusted within a week or two.
Yet, markets are hesitant and Polymarket (the online political betting market) currently sees almost a three-in-four chance that the closure lasts through at least the end of next week.
That could keep the dollar on the back foot for the time being, while Treasuries could be well bid given their safe-haven status. Today’s nonfarm payrolls report looks certain to be delayed.
This is not a total disaster considering that we’ll continue to receive this afternoon’s September PMI figures, which will provide us with at least some idea as to how the US economy is performing.
It does mean that the bad smell left from Wednesday’s dismal ADP jobs report will linger a little longer, which probably won’t do the dollar any favours.
A net 32k jobs were slashed in the private sector in September according to the report, the most since March 2023, while August’s data was also revised to -3k. Not that we needed confirmation, but this further supports the case for additional Fed cuts at each of the next couple of meetings in October and December, which are currently almost fully priced in by futures.
Author
Matthew Ryan, CFA
Ebury
Matthew is Global Head of Market Strategy at FX specialist Ebury, where he has been part of the strategy team since 2014. He provides fundamental FX analysis for a wide range of G10 and emerging market currencies.
