The shutdown in the US continues. The yen strengthens following the election of a new prime minister.

In the United States, there is still no progress in talks to end the federal shutdown. Failure to reach an agreement means further delays in publication. macroeconomic data, which in turn directs investors' attention to other events, such as the minutes of the last Fed meeting and numerous statements by central bankers from the G10 countries. Despite the uncertainty, however, I do not expect any sudden movements in the US dollar.

The "Shutdown" is still ongoing

Weekend reports confirm no progress has been made on the US shutdown, meaning further delays in the release of government dataThe currency market is once again facing an unusual week – limited data from the US will force investors to focus on other factors, such as central bank announcements and the political situation.

Market expectations for a Fed rate cut in December remain near 50 basis points, approaching the median forecast. The most important event of the week will be the release of the minutes from the September meeting. FOMC (on Wednesday). Investors will be looking for confirmation of whether Chairman Jerome Powell's cautious stance on further interest rate cuts is shared by the majority of the Committee members. The risks seem slightly tilted towards a dovish interpretation, which could trigger a negative reaction from the dollar.

The longer the shutdown lasts, the more pressure the dollar could face. At the same time, the US currency continues to show considerable resilience – the market needs much worse data today to build significantly larger short positionsIn practice, this means the dollar is unlikely to experience above-average volatility in the coming days. Instead, market movements could be driven by local events in other G10 countries, as exemplified by the situation in Japan.

Sanae Takaichi, Prime Minister of Japan

The election of Sanae Takaichi as Prime Minister of Japan following a vote by the Liberal Democratic Party leaders triggered an immediate market reaction. Her economic program focuses on reflationary policies (stimulating growth and inflation), which has led to a weakening of the yen, an increase in Japanese bond yields, and a rise in Nikkei index by about 5 percent. The yen lost about 2 percent against the dollar, which shows the scale of investors' surprise.

The EUR/USD exchange rate still does not find a clear impulse to permanently break above 1,18, despite the influx of unfavorable information from the US. The market seems reluctant to see a massive sell-off of the dollar, and the euro currently lacks enough strength to force the major currency pair to start gaining significantly again..

In the coming days, the rate will likely remain in a narrow range of 1,168–1,176, although the risk balance remains slightly on the upside due to possible dovish signals from the Fed and further effects of the shutdown.

Speeches by ECB representatives

No significant data is expected from the eurozone this week. Investors' attention will be focused on speeches by ECB officials, including today's address by President Christine Lagarde. Recent inflation data confirmed that the ECB is satisfied with the current level of interest rates, so we shouldn't receive any new guidance on monetary policy.

On Wednesday, we will learn the decision of the Monetary Policy Council – the consensus assumes maintaining interest rates at 4,75%, although the probability of a cut has recently increased. The reduction is due to a positive surprise in the inflation data for September and the fact that the President signed a law freezing energy prices.However, the Monetary Policy Council may want to wait for the latest November projection and it is possible that the next cut will be postponed until next month.

Source: OANDA TMS Brokers