Dollar softer as US govt shuts down

Markets are relatively calm this morning notwithstanding the government shutdown in the US. The Senate yesterday failed to pass a funding bill that would have averted a shutdown, the effects of which will range from a furloughing of Federal employees to a delay to economic data releases. Government shutdowns are nothing new in the US and tend to be short-lived affairs – the longest by far was the 35-day shutdown in late 2018/early 2019 – so we’ll have to wait to see what happens with this one. The dollar is marginally weaker this morning in response to the shutdown, with EURUSD and GBPUSD creeping up to around $1.1765 and $1.3460 respectively from yesterday’s closing levels of about $1.1735 and $1.3445. This in turn leaves EURGBP unchanged in a tight range trading at £0.8730.

Little happened in the main government bond markets yesterday with yields ending flat on the day, and it is much the same again this morning with yields marginally higher at the start of play. European and US equity markets advanced for a second day running, though gains were again modest. The former have opened a touch lower this morning, while US indices look set to do likewise later today according to the futures markets.

Consumer confidence in the US fell for a second month running in  September, according to the Conference Board’s measure of sentiment, and continues to run below year earlier levels, consistent with the modest slowdown in consumer spending growth that has occurred in 2025 to date. Consumers’ assessment of current labour market conditions deteriorated again in September, with the “jobs plentiful”/ “jobs hard to get” differential falling to its lowest level since late 2020. Meanwhile, separate labour market data show the job hiring rate fell for a third month in five in August – coinciding with the recent soft patch in payrolls growth that prompted the Fed to resume lowering interest rates – while job layoffs were unchanged last month and remain low and stable.

Remarks by ECB President Christine Lagarde yesterday point to steady interest rates ahead, consistent with current market pricing. She reiterated that monetary policy is “in a good place”, with the “large inflation shock we faced in recent years…now essentially over in the euro area” (and) “risks to inflation…quite contained in both directions,” and well positioned “to respond if the risks to inflation shift, or if new shocks emerge that threaten our (inflation) target.”

Looking to the day ahead, economic data due include a flash reading of Euro area inflation in September, which is expected to show headline inflation rising to 2.3% from 2% in August but the core rate remaining at 2.3%, and the ADP employment report for September in the US – which will get more attention than usual given that official jobs report scheduled for Friday will be delayed because of the government shutdown – with the consensus expecting it to show an increase in private sector employment of 51k (after +54k in August). Other US data of note includes the ISM manufacturing index, also for September.