USD experiencing a slight short squeeze heading into the weekend
There remains no end in sight to the partial US Federal government shutdown, which means that the US data releases which are compiled by Government departments are delayed indefinitely. This includes today’s nonfarm payrolls report which is likely to be delayed until one week after the US shutdown ends. The political gridlock only got tighter overnight with President Obama stating there was only “one way out” of the shutdown and called for the House Republican leaders to allow a vote on a stopgap spending bill. But the House wants to negotiate the spending bill and debt limit together. Hence, it is likely the impasse goes closer to the October 17 debt ceiling deadline. However, the USD is trading on a stronger footing this morning, especially against the GBP, EUR and CHF. We expect this may be due to investors reducing short USD positions heading into the weekend. We view that the USD is already trading at a sizeable discount relative to short-term rate differentials, suggesting that there will be plenty of scope for the USD to rally on any positive outcome in Washington. We are therefore maintaining our long USD recommendations against the EUR and GBP. Please read our economists’ latest Desknote “US: Fiscal Indecency” in which they detail how the Administration still has a number of options for avoiding a debt default after that date.
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BNP Paribas