Political gridlock results in partial government shutdown
The government appears to be entering into partial government shutdown mode for the first time in 17 years following a failure of Congress to provide a resolution. Federal agencies are being directed to cut back services. The outcome was not our base case scenario and should result in downward pressure for the USD against core, low yielding currencies, but gain against the commodity bloc and EM FX via the risk-off channel. GBP, EUR and CHF are at fresh highs, or in the process of pushing towards fresh highs on the result; GBPUSD cleanly through 1.6200, USDCHF near 0.9025 and EURUSD within 30 pips of the 1.3569 high earlier this month. However, in the Asian session risk-markets were not particularly affected with equities flat to higher while the AUD and Asian currencies fared quite well. Today, the data calendar will be somewhat unhelpful for the USD— we expect the US manufacturing ISM to give back some ground after two strong months, and we look for manufacturing PMI in UK to extend recent gains. BNP Paribas Positioning Analysis suggesting long USD positions have finally been cut back to flat and additional losses will be harder to come by.
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BNP Paribas