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In the latest FX moves, the US dollar weakened as concerns mount over a US government shutdown, alongside a legal battle over the removal of Fed Governor Cook and economic data that is raising bets of more rate cuts from the Fed.
The Japanese yen also showed to outperform G7 currencies due to a hawkish Bank of Japan, while the euro rose on risk-on sentiment alongside the Australian dollar and Chinese Yuan. Precious metals continued to reach record highs.
Shutdown Looms Amid Fed Policy Focus and Cook Legal Battle
The US dollar index fell 0.3% after a 0.5% surge last week. The decline came amid mounted fears over a possible US government shutdown.
If Congress fails to pass a funding bill before the fiscal year ends today, some parts of the government could close starting Wednesday. ⁽¹⁾
Recent economic data has led traders to expect a 90% chance of a rate cut from the Federal Reserve in November and a 65% chance of a cut in December, due to last Friday’s Core PCE Index that showed steady inflation. ⁽²⁾
A legal battle over Federal Reserve Governor Lisa Cook’s removal is also drawing attention. The Trump administration has asked the US Supreme Court to allow President Donald Trump to fire Cook, claiming it’s within presidential authority.
Analysts warn that any threat to the Fed’s independence could pose a bigger risk to the dollar than a government shutdown. ⁽³⁾
Attention now turns to September’s Nonfarm Payrolls report on Friday for labor market cues, alongside job openings, private payrolls and the ISM manufacturing PMI.
Source: TradingView DXY Chart
Yen Gains on Hawkish BOJ
The Japanese yen strengthened against major currencies, especially its rise of 0.87% against the US dollar, due to growing expectations of a rate hike from the Bank of Japan. BOJ policy board member Noguchi stated that the need for rate hikes is increasing, with strong economic data outweighing downside risks. ⁽⁴⁾
Traders will focus on Japan’s Tankan business sentiment and consumer confidence, which are both due on Wednesday and could impact the yen. Minutes from the BOJ’s July meeting showed that the central bank is willing to raise rates if data meets expectations, despite a rate hold in their previous meeting in September. ⁽⁵⁾
Source: TradingView USD/JPY Chart
Euro Rises, Yuan Holds Steady on Stimulus Hopes
The euro rose 0.25% against the dollar as markets await Eurozone CPI data due on Wednesday. The data is expected to impact the euro and could influence the ECB’s next decision on monetary policy. Markets are also monitoring the Ukraine war and whether it could lead to more military spending in the Eurozone.
The Chinese Yuan held steady, supported by the People’s Bank of China measures to attract foreign investors to buy Chinese bonds and promote a digital yuan globally. Expectations of new economic stimulus and data showing China’s industrial profits returning to growth in August also boosted the yuan, despite last week’s largest weekly loss in two months. ⁽⁶⁾
Source: TradingView EUR/USD Chart
Source: TradingView USD/CNH Chart
Australian Dollar Rises on Hawkish RBA
The Australian dollar extended gains for three consecutive sessions, rising almost 1% as the Reserve Bank of Australia held the cash rate steady at 3.6%, aligning with market expectations and keeping rates at its lowest level since April 2023.
The board noted that both headline and trimmed mean inflation remained within the 2–3% target in Q2, though early signs suggest Q3 inflation could exceed forecasts. Moreover, the uncertainties surrounding domestic growth and inflation persist, prompting the central bank to maintain a cautious stance. ⁽⁷⁾
The Aussie dollar also gained additional support from a weaker US dollar amid growing concerns over a potential US government shutdown.
Source: TradingView AUD/USD Chart
Precious Metals Continue to Skyrocket to Record Highs
Gold soared to new record highs at $3,865, supported by expectations of further Fed rate cuts, government shutdown fears, new tariffs and a weak US dollar.
Silver reached a 14-year high at $47 and is still on track to hit 20% gains in September as the Silver Institutes to forecast a fifth straight annual deficit in 2025 for five consecutive quarters and supply-demand imbalances have caused silver to rise. Demand is expected to rise more than supply by over 100 million ounces, further reducing inventories. ⁽⁸⁾
Source: TradingView Gold Chart
