EUROPEAN FX UPDATE: USD pulls back as markets ponder looming US government shutdown

USD: DXY -0.1%; 97.79

• DXY is extending on the modest downside seen since last Friday and scaling back some of the upside triggered by last week's stronger-than-expected US data. Focus in the US is on the prospect of a government shutdown after talks between Republicans and Democrats were reported to show no signs of progress last night. Accordingly, the BLS has said it plans not to release economic data during the Government shutdown and will suspend all operations. As such, it is looking like Friday's NFP release is in jeopardy. For markets, this means that other labour indicators will take heightened importance as traders look to see how much the Fed's dual mandate is coming into conflict. Today sees US JOLTS data for August (exp. 7.185mln vs. prev. 7.181mln) ahead of tomorrow's September ADP print and Thursday's weekly claims metrics. On the shutdown, Citi writes that, whilst "shutdowns are short-lived with limited to no impact...they do correspond with USD weakness". The desks sees modest "USD weakness against JPY, CHF, and EUR should a shutdown materialize". Elsewhere today, Consumer Confidence, Fed’s Logan, Jefferson and Goolsbee are all due on deck. DXY briefly slipped below yesterday's low @ 97.77 with the next downside target coming via the September 25th trough @ 97.37.

EUR: EUR/USD +0.2%; 1.1759

• EUR is fractionally firmer vs. the USD amidst a slew of regional Eurozone CPI releases ahead of the bloc-wide print tomorrow. Metrics from France printed softer-than-expected on a harmonised basis, whilst state German CPIs have leaned hotter than anticipated when looking at expectations for the national print due at 13:00BST, which is forecast to show just a modest uptick from its prior Y/Y. Ahead of tomorrow's Eurozone release, ING writes that "an acceleration in headline readings is widely expected this month, and should keep the pressure off the ECB to review its current cautious stance anytime soon. On the margin, it should be positive for the euro". Today's speaker slate includes ECB’s Lagarde, Cipollone & Elderson. EUR/USD has ventured as high as 1.1761, taking out yesterday's best @ 1.1754.

JPY: USD/JPY -0.4%; 147.98

• JPY is firmer vs. the USD for a third session in a row with USD/JPY slipping below its 200DMA @ 148.37 and eyeing a test of its 50DMA @ 147.77. JPY saw some strength during APAC trade following the BoJ Summary of Opinions with the release mixed but carried hawkish undertones, signalling the central bank is edging closer to further tightening while remaining highly sensitive to external risks, particularly from the US economy and trade policy. Traders continue to ramp up bets of an October BoJ hike to circa 70%, according to Bloomberg pricing with the Yen also beneffiting as a safe-haven alternative to the USD as the prospect of a US government shutdown looms. Note, tomorrow's Tankan survey and Saturday's LDP leadership race loom large.

GBP: GBP/USD +0.1%; 1.3440

• GBP is firmer vs. the USD and steady vs. the EUR with incremental macro drivers for the UK on the light side. Of concern, however, is news that annual UK shop price inflation rose to 1.4% in September, up from 0.9% in August, according to the latest monthly report from the British Retail Consortium (BRC) and analysts NIQ, via the Guardian. Today sees a trio of BoE speakers with Lombardelli, Mann and Breeden all due on deck. Note, the next 25bps BoE cut is not fully priced until April 2026. Elsewhere, UK PM Starmer is due to address the Labour Party conference at 14:00BST. However, the speech is not expected to be particularly impactful for financial markets with Politico reporting that "The PM won’t be announcing the chancellor’s budget for her in the speech, obvs, so don’t expect any answers from him on tax rises". Cable is eyeing yesterday's peak @ 1.3457. If breached, the 50DMA kicks in @ 1.3465.

Antipodeans: AUD/USD +0.4%; 0.6602. NZD/USD +0.4%; 0.5800

• Antipodeans outperform with initial support stemming from a firmer CNY fixing. Thereafter AUD/USD gained after the RBA left rates unchanged as expected in a unanimous decision but struck a hawkish tone, noting inflation risks and that the decline in underlying inflation has slowed. At the follow up press conference, Governor Bullock remarked she would not be giving any forward guidance and will have more data in November. Oxford Economics expects underlying inflation to ease to 2.5% in the coming months, adding this will free up the RBA to cut in November and again in Q1 2026. AUD/USD has made its way back onto a 0.66 handle with a current session peak @ 0.6607. The next target comes via last week's high @ 0.6628. NZD/USD has continued to clamber off last Friday's multi-week low @ 0.5744 and moved back onto a 0.58 handle.

30 Sep 2025 - 09:55- ForexEU Research- Source: Newsquawk