US

USD is up against all major currencies, S&P500 futures are flat after the underlying index hit a fresh high yesterday, and gold prices continue to go parabolic inching towards $4,000 per ounce.

There's no clear sign yet of a deal to the end the US government shutdown which enters its seventh day. A fresh round of votes in the Senate yesterday to reopen the government failed to get the necessary support of 60 votes. The longer the US government shutdown lasts, the greater the downside risks to the labor market as the White House raised the specter of a permanent downsizing of federal workers.

Kansas City Fed President Jeff Schmid (2025 FOMC voter) delivered hawkish remarks. Schmid views “the current stance of policy as only slightly restrictive, which I think is the right place to be” given that “inflation is too high” and the cooling in the labor market is “consistent with relieving price pressure and returning inflation to 2 percent.” Fed speakers today include: Bostic (non-voter), Bowman, Miran, and Kashkari (2026 voter).

Fed funds futures continue to imply roughly 50bps of cuts by year-end to a target range of 3.50-3.75%, which is in line with the FOMC’s median projection. We anticipate the Fed to turn more dovish by the time of the December FOMC meeting because restrictive monetary policy can worsen the already fragile employment backdrop and upside risks to inflation are not materializing. Bottom line: USD downtrend is intact.

The September New York Fed consumer survey of inflation expectations is today’s highlight (4:00pm London, 11:00am New York). US inflation expectations are anchored and leaves room for the Fed to ease policy.

EUROZONE

EUR/USD is trading heavy near 1.1660. French President Emmanuel Macron gave outgoing Prime Minister Sebastien Lecornu until Wednesday evening to conduct “final negotiations” with political parties “in order to define a platform for action and stability for the country.” Macron will then have to choose between either appointing another prime minister or call a new parliamentary election.

In the meantime, the October 13 deadline to submit a draft 2026 budget to the National Assembly is unlikely to be met. This means Article 49.3 will ultimately have to be invoked to temporarily extend the 2025 budget until the 2026 budget is passed – as was done for the 2025 budget.

France’s political turmoil remains country-specific and not systemic as Eurozone periphery bond yields spreads to Germany are contained. We expect EUR/USD to hold above its 100-day moving average (1.1627). If this level gives way, the next support is offered at 1.1575.

JAPAN

JPY remains under downside pressure undermined by Sanae Takaichi’s (set to become Japan’s next prime minister) pro-stimulus agenda. Takaichi appointed former Finance Minister Shunichi Suzuki as Liberal Democratic Party (LDP) Secretary General. Suzuki moved quickly to reassure markets about the government’s fiscal discipline. Suzuki said “Even those who favor expansionary fiscal policy do not believe it’s OK to ignore fiscal discipline completely…While fiscal policy is an important pillar of support, we must also fully respect fiscal discipline.”

In parallel, Japanese Finance Minister Katsunobu Kato reiterated that currencies should move in a stable manner reflecting fundamentals. The next two resistance levels for USD/JPY are offered at 150.92 (August 1 high) and 151.30 March double-top). We would look to sell USD/JPY on overshoots above 151.00 given that USD/JPY is trading well-above the level implied by US-Japan 2-year bond yield spreads.

AUSTRALIA

AUD/USD dropped back to the lower end of its 0.6580-0.6630 range which has been in place since September 30. Australia’s Westpac-Melbourne Institute Consumer Sentiment Index fell -3.5% m/m in October to a six-month low at 92.1 driven by more downbeat views on the near-term outlook, especially prospects for family finances. Encouragingly, consumers are still not concerned about the outlook for jobs as the Unemployment Expectations Index declined -2.9% to a two-month low at 127.6 in October.

At its last September 30 meeting, the RBA left the policy rate at 3.60% and signaled that the bar for additional rate cuts is high. The next RBA meeting is November 4 and cash rate futures imply 40% odds of a 25bps cut. Over the next 12 months, cash rate futures continue to more than fully price-in one 25bps cut and the policy rate to bottom around 3.35%. Bottom line: AUD/USD can edge higher as the RBA is on track to ease more cautiously than the Fed and global economic activity is resilient.

NEW ZEALAND

NZD is underperforming all major currencies and faces additional downside risk in the short-term. The RBNZ is widely expected to slash the policy rate 25bps to 2.75% (9:00pm New York). The swaps market implies 45% probability of a bigger 50bps cut to 2.50%. The steeper downturn in New Zealand Q2 real GDP leaves scope for the RBNZ to front-load rate cuts.

In August, the RBNZ stressed “there is scope to lower the OCR further,” and projected one 25bps cut by December and another 25bps cut over H1 2026, implying the policy rate would settle around 2.50%. No Monetary Policy Statement is tied to this meeting. The next one is due November 26