Dollar continues to weaken as shutdown continues; euro gains

Investing.com - The U.S. dollar edged lower Thursday, adding to a four-day losing streak as traders digest the U.S. government shutdown and the potential for more Federal Reserve monetary easing. 

At 04:15 ET (08:15 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower to 97.272, after dropping over the last four sessions to one-week lows.

Dollar faces prolonged weakness

The U.S. government has shut down most of its operations after an eleventh-hour spending bill backed by the Republican party failed to clear a Senate vote. 

There doesn’t appear to be a clear path out of the impasse, and investors could be in for a prolonged shutdown given the sharp political differences between the two sides of the U.S. political scene.

The betting website Polymarket indicates the highest likelihood that the standoff will last between one or two weeks, though there is currently a 34% probability of a longer shutdown, with just over $1.2 million wagered.

This means that the eagerly-awaited nonfarm payrolls report scheduled for Friday is unlikely to emerge then, and traders have placed extra significance on Wednesday’s weak ADP private payrolls report.

U.S. private payrolls unexpectedly dropped by 32,000 last month after a downwardly revised 3,000 decline in August, according to data released by ADP.

This labor market weakness opens the possibility of additional interest rate cuts in each of the two Federal Reserve policy meetings this year, adding to the reduction seen last month.

Fed funds futures now imply a 99% probability of a 25-basis-point cut later this month, up from 96.2% a day earlier, according to the CME Group’s FedWatch tool.

The greenback did receive some support earlier in the session after the U.S. Supreme Court said it would hear arguments in January over President Donald Trump’s attempt to remove Federal Reserve Governor Lisa Cook, leaving her in the post for now. 

U.S. to help Ukraine with intelligence - WSJ

In Europe, EUR/USD traded 0.2% higher to 1.1751, helped by a report in the Wall Street Journal stating that the United States will provide Ukraine with intelligence for long-range missile strikes on Russia’s energy infrastructure, potentially depriving Moscow of revenue to continue its war with Ukraine. 

The latest eurozone unemployment rate is expected to remain unchanged at 6.2% in August, but this follows the region’s annual inflation rate ticking up to 2.2% from 2% previously, suggesting the European Central Bank will remain on hold at its next policy meeting. 

GBP/USD traded 0.1% higher to 1.3497, with sterling benefiting from dollar weakness.

Yen stands to benefit from U.S. shutdown 

Elsewhere, USD/JPY traded largely flat at 147.01, after falling in the last four consecutive sessions.

ING analysts, before the U.S. shutdown, had predicted that “the yen could emerge as an outperformer as a hedge to the U.S. entering a government shutdown.”

AUD/USD gained 0.2% to 0.6625, after data released Thursday showed Australian household spending rose only marginally in August as goods took a downturn.

USD/CNY traded largely unchanged at 7.1196, ahead of a meeting in four weeks between Chinese President Xi Jinping and U.S. President Trump. Chinese markets are closed for the Golden Week holiday.