USD: US shutdown begins, dollar wobbles
George Vessey
The U.S. government has entered its first shutdown in nearly seven years and the third under President Donald Trump. The news is already rippling through global markets. Asian equities and U.S. futures declined, reflecting investor caution, while European equity contracts edged higher, suggesting some regional divergence in sentiment. Gold, the classic safe-haven asset, is seeing renewed demand, as investors seek shelter from rising uncertainty.
In currency markets, the U.S. dollar is under pressure, weighed down by concerns over institutional credibility and the potential delay of key economic data, including Friday’s jobs report. Historically, shutdowns have had a mixed impact on the dollar. In 2013, the greenback saw brief volatility before strengthening post-resolution. During the 2018–19 shutdown, the dollar index fell roughly 2% before rebounding once a deal was struck. While past episodes offer no clear playbook, they underscore how sensitive the dollar can be to news flow.
The shutdown means non-essential services have been halted, affecting hundreds of thousands of federal workers. Trump has suggested this could be used to enact permanent layoffs, potentially deepening its economic impact. With Democrats and Republicans still locked in a stalemate, there’s no immediate sign of resolution. The shutdown also threatens to delay key economic data, including Friday’s jobs report from the Bureau of Labor Statistics – critical for the Federal Reserve as it weighs future rate decisions. Without this data, policymakers face greater uncertainty heading into their late-October meeting.
Tuesday’s macro data added to the complexity. August job openings came in stronger than expected, suggesting resilient demand. However, hiring slowed, unemployment ticked higher, and the rise in openings hasn’t translated into stronger payroll growth. Consumer confidence fell to a five-month low in September, with the Conference Board’s survey showing a sharp drop in the share of Americans who believe jobs are “plentiful.” This metric—often a leading indicator of unemployment—suggests workers are sensing a cooling labor market before it shows up in official data.
The disconnect between upbeat headline figures and weakening sentiment points to a labor market losing momentum beneath the surface. That could weigh on growth and reinforce expectations that the Fed will maintain an easing bias through year-end—potentially undermining the dollar’s recent rebound.
CAD: Continued weakness
Kevin Ford
Year-to-date, the Canadian dollar (CAD) has exhibited marked underperformance relative to its G10 counterparts, with weakness being most pronounced against key European currencies. The currency’s struggle has led to notable valuation extremes: EUR/CAD is currently trading at its highest level since 2009, CHF/CAD has reached an all-time high, and SEK/CAD stands at its strongest level since 2021.
This broad-based CAD softness is primarily attributable to weak domestic economic data and the strengthening fundamental backdrop for the euro. The rapid advance in EUR/CAD is pushing the pair toward short-term overbought conditions. From a technical perspective, the pair is approaching critical resistance at 1.635, with the key support level at 1.614, underscoring the strong recent momentum behind the euro’s appreciation.
While the CAD has registered a gain of approximately 3% when measured against the US dollar (USD), it remains the worst-performing G10 currency on a year-to-date basis. The USD/CAD pair’s upward momentum has stalled but continues to hold above the technically significant 1.39 level.
While the US government shutdown has formally started, FX markets have displayed a modest reaction thus far, suggesting investors are currently treating it as a contained event.
However, market participants remain cautious, given the historical context. There is an expressed concern that this episode could evolve into one of the more protracted shutdowns witnessed over the last three decades, with historical durations ranging from a minimum of three days up to 35 days. A prolonged shutdown could introduce greater volatility and risk aversion into global FX markets.
EUR: Eyes on $1.18 in the short term
George Vessey
The euro ended September and Q3 slightly lower against the U.S. dollar, but remains up over 13% year-to-date – marking its strongest nine-month start to a year since 2017. Near-term momentum has softened, with EUR/USD continuing to trade in the shadow of U.S. macro developments. However, with the U.S. government shutdown now underway, a test of the $1.18 level is possible this week if dollar sentiment continues to deteriorate.
In the eurozone, inflation data is the key focus. Preliminary September figures from France and Germany showed headline inflation rising to 2.4% year-on-year, the highest since spring, while German core inflation edged up to 2.8%. These readings should keep the ECB comfortably on hold, reinforcing its cautious stance. That said, broader German macro data suggests inflation may not be the economy’s biggest challenge ahead. With a stronger euro and favourable energy base effects, inflation is expected to drift back toward – and potentially below – 2% in the coming months.
Looking at the gap between eurozone and U.S. core inflation, and overlaying the year-on-year change in EUR/USD with a six-month lag, there’s a case to be made for a sharp reversal in the currency pair over the next few months. For now, though, the immediate focus is whether the $1.18 barrier will be breached this week.
In short, while the euro’s year-to-date performance remains impressive, its short-term trajectory is increasingly tied to U.S. developments, with eurozone data offering only limited support.
Gold roars
Table: Currency trends, trading ranges and technical indicators
Key global risk events
Calendar: September 29 – October 3
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
