The US Dollar remained steady on Thursday, with the USD Index close to 98.00 as the US government shutdown continues. Due to the shutdown, September’s Nonfarm Payrolls data is delayed, heightening interest in the ISM’s Services PMI report for September.
This week’s currency changes reveal the US Dollar’s variations against major currencies. It weakened most against the Japanese Yen, with USD losing 1.31% to JPY, while gaining 1.34% from JPY. In the political arena, US President Donald Trump met with Russ Vought to discuss potential federal program cuts, also freezing $26 billion for Democratic-leaning states.
Japanese Economic Data And The Dollar
From Japan, economic data showed unemployment rising to 2.6% in August. Bank of Japan Governor Kazuo Ueda remarked on inflation and upcoming political events. USD/JPY recorded a minor gain, reversing its four-day loss.
Meanwhile, gold saw considerable swings on Thursday, ending slightly down. Early on Friday, it sat at approximately $3,860. EUR/USD remained above 1.1700, with impending PPI data release. GBP/USD, despite USD recovery, traded near 1.3450 on Friday morning.
With the US government shutdown now in its third day, we should prepare for heightened market volatility. The delay in the critical Nonfarm Payrolls report means traders will react more strongly to secondary data, creating short-term trading opportunities. We can use options strategies, like straddles, to profit from the expected sharp price swings in major US Dollar pairs without needing to guess the direction.
All eyes will be on the ISM Services PMI report later today, as it is now the most important piece of economic data for the week. Looking back at data from 2023 and 2024, the services sector often showed resilience, and a strong reading today above the consensus could easily push the US Dollar Index back toward its highs. Conversely, a weak print would confirm a slowdown and likely send the dollar sharply lower.
Market Implications Of The Shutdown
We should remember past shutdowns for context, such as the longest one in 2018-2019 which lasted 35 days. During that period, the dollar experienced volatility but ultimately did not collapse, suggesting that markets often price in an eventual resolution. This history indicates that any panic-driven selling of the dollar in the coming days could present a valuable buying opportunity.
The Japanese Yen deserves special attention, as it has been the strongest performer against the dollar this week. This is a classic safe-haven move, but the LDP leadership election this Saturday introduces significant political uncertainty for Japan. Any surprise from the election or change in tone from the Bank of Japan could quickly reverse the yen’s recent gains.
Finally, we must anticipate a wave of volatility when the shutdown ends and delayed data is finally released. The market will have to process weeks of information at once, which could lead to erratic price action. We know from experience that a single NFP report can move a currency pair like EUR/USD by 70 pips or more in an hour, so a backlog of releases will create an extremely unpredictable environment.
