Forex Market Update: USD Rises Amid U.S. Government Shutdown; Euro and Pound Under Pressure

The forced shutdown of government agencies due to a lack of consensus between representatives of the Democratic and Conservative parties continues, depriving markets of official macroeconomic data. Under these conditions, forex investors are turning to alternative sources of information. For example, investment firm The Carlyle Group Inc. reported yesterday that only 17.0 thousand jobs were created in the labor market last month, compared to federal statistics showing a 22.0 thousand increase in August. In addition, according to a consumer survey conducted by the Federal Reserve Bank of New York, fewer citizens expect financial conditions to improve over the next 12 months, while inflation expectations for the same period have risen, underscoring the fragile state of the national economy and the aggravation of two key problems — accelerating consumer prices and a cooling labor market. Whether the U.S. Federal Reserve will adjust interest rates again under these conditions is still unknown; however, most experts expect two more rounds of monetary easing this year — in October and December.

Eurozone

The euro is weakening against the U.S. dollar and the pound on forex, but strengthening against the yen.

The currency is under pressure from a fourth consecutive month of slowdown in Germany’s manufacturing sector: in August, new orders fell by –0.8% instead of the expected +1.2%, industrial production printed –4.3% — a three-year low — versus a –1.0% forecast, while the automotive sector is additionally impacted by U.S. trade tariffs, leading declines. These data significantly increase the likelihood of a contraction in Germany’s Q3 GDP and a shift of the economy into recession. Meanwhile, Bank of Spain Governor and ECB Governing Council member José Luis Escrivá stated that inflation risks are balanced and that there is no significant slowdown in eurozone growth yet, though he did not rule out the possibility of future borrowing-cost adjustments.

United Kingdom

The pound is weakening against the U.S. dollar but strengthening against the yen and the euro.

Investors are focused on the EU authorities’ decision to reduce duty-free steel import quotas by 47.0% and impose 50.0% tariffs on volumes above that threshold, justified as a means to provide reliable and consistent protection for the bloc’s steel industry and preserve jobs. Nevertheless, experts are confident this will negatively affect the UK’s industrial sector, which accounts for 78.0% of foreign steel supplies to the EU. Combined with the 25.0% import tariffs introduced by the White House, Brussels’ steps could catalyze a slowdown in the UK economy by triggering reductions of around 80,000 jobs; industrial leaders are urging the government to strike a deal with EU authorities, though this will take time. Meanwhile, according to Bank of England commentary, trading volumes on financial markets could decline significantly if investor sentiment worsens amid the potential loss of the Federal Reserve’s independence; in such a case, a substantial repricing of U.S. dollar-denominated assets — including in sovereign debt markets — would be expected. In addition, the UK regulator sees no major changes in domestic financial-stability risks, as households and firms are managing inflation, which is preliminarily estimated to reach 4.0% in September.

Japan

The yen is weakening against the U.S. dollar, the euro, and the pound.

Data on changes in average wages were released today: in August, wage growth slowed from 3.4% to 1.5% versus a 2.6% forecast, while overtime pay eased from 3.0% to 1.3%. Thus, growth in this indicator — considered a key driver of inflation — fell below the 2.0% target, which may prompt the Bank of Japan to temporarily refrain from monetary tightening. Additional pressure on policymakers comes from the rhetoric of Sanae Takaichi, the new head of Japan’s ruling Liberal Democratic Party, who criticizes the central bank for intending to continue raising interest rates.

Australia

The Australian dollar is strengthening against the euro and the yen, while showing mixed dynamics against the pound and the U.S. dollar.

August building approvals were published today: total approvals fell by 6.0%, while private house approvals declined by 2.6%, with both indicators showing negative dynamics for the second consecutive month. Overall, housing demand is weakening amid uncertain global trade conditions and the prospect of an economic downturn domestically. Given the incoming data, Reserve Bank of Australia (RBA) officials may continue to ease monetary policy.

Oil

The morning rise in oil prices reversed to losses under the influence of several opposing factors: prices remain supported by OPEC+’s decision to raise November output by 137,000 barrels per day, rather than the 274,000–411,000 bpd expected by analysts — a signal of concern about oversupplying the market or failing to meet plans due to limited production capacity.

On the other hand, the positive trend is capped by weekly fuel-inventory data from the American Petroleum Institute (API), which showed an increase of 2.780 million barrels. At 16:30 (GMT+2), the U.S. Energy Information Administration (EIA) will release corresponding statistics: analysts expect a 0.400 million-barrel build, which could add pressure to the price of “black gold.”