The ISM Services Prices Paid in the US rose to 69.4 in September, up from 69.2 previously. This reflects a modest increase in the cost pressures within the sector.
The EUR/USD currency pair climbed to daily highs near 1.1750, while GBP/USD gained momentum, aiming for the 1.3480 zone. The movements are tied to the US Dollar’s descent amid ongoing concerns over a potential US shutdown.
Market Reactions
Gold approached $3,890 per troy ounce following the release of US data, as uncertainty regarding the US shutdown affects the market. Bitcoin retreated to near $120,000, after peaking at $120,960, with Ethereum and Ripple maintaining their weekly highs.
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Economic Impacts
The September ISM Services Prices Paid data shows inflation is not going away quietly, ticking up to 69.4. Normally, this would be a green light for the US Dollar, but the market is ignoring it for now. The focus is squarely on the US government shutdown, which is creating widespread uncertainty and pushing the dollar lower against other currencies.
We are now several days into the shutdown that began on October 1st, and political deadlock is causing significant anxiety. The Congressional Budget Office has estimated that each week the government remains closed could trim 0.2% from fourth-quarter GDP growth. This potential economic damage is overriding the Federal Reserve’s inflation concerns in the short term.
This clash between sticky inflation and political risk is a recipe for higher market volatility. We have already seen the VIX, the market’s ‘fear gauge’, jump over 25% in the past week to trade above 22, a level not seen since the banking sector concerns of 2024. Buying VIX calls or using options straddles on major indices could be a direct way to trade this rising uncertainty.
With the dollar weakening, assets like gold and foreign currencies are gaining strength. We see traders favoring call options on currency pairs like EUR/USD and GBP/USD to ride this trend with defined risk. This strategy protects against a sudden snap-back in the dollar should a resolution to the shutdown be announced unexpectedly.
The Fed is now in a difficult position, caught between the high services inflation number and a shutdown that acts as an economic brake. This makes a November interest rate hike far less certain, a view the SOFR futures market has been pricing in over the last few trading sessions. We can use interest rate derivatives to position for the Fed being forced to pause, regardless of the inflation data.
