Global markets continued to show signs of fatigue overnight, with U.S. equities easing lower as the government shutdown dragged into another session with no breakthrough in sight.
The Dow Jones slipped 0.2% to close at 46,602, while the S&P 500 fell 0.38% to 6,714. The Nasdaq led losses, down 0.67% to finish at 22,788.
Meanwhile, the U.S. dollar extended its rally, with the DXY climbing 0.49% to 98.59. Gains were strongest against the Japanese yen, as traders continued to react to Sanae Takaichi’s surprise weekend election victory in Japan.
Bond markets firmed slightly as yields moved lower – the 2-year yield eased 2.1bps to 3.568%, and the 10-year benchmark fell 2.7bps to 4.125%.
In commodities, oil prices ticked higher, with Brent crude up 0.4% to $65.73 and WTI gaining 0.55% to $62.03, following a smaller-than-expected OPEC+ production increase. Gold continued its impressive run, climbing another 0.53% to settle at $3,981.94 per ounce, edging ever closer to the symbolic $4,000 mark.
Yen Under Pressure After Takaichi’s Victory
The Japanese yen remained at the centre of attention in the FX market after Takaichi’s surprise leadership win. Her pro-growth and big-spending policies, along with criticism of recent BoJ tightening, sparked a sharp sell-off in the yen – catching traders off guard.
The yen hit a record low against the euro earlier in the week and fell to a 7-month low versus the dollar, with USD/JPY now trading nearly 3% above Friday’s close.
Some analysts are already speculating that official intervention could be on the horizon if the slide continues. From a technical perspective, resistance sits around 154.50, and a break above could open the door to multi-decade highs above 160.00 – though few expect policymakers to allow such levels without action.
Expect volatility to remain elevated in the sessions ahead as traders watch for signs of potential intervention or shifts in sentiment.
Central Banks Take the Spotlight
While today’s economic calendar is relatively light, central banks will dominate the conversation.
In Asia, the Reserve Bank of New Zealand is expected to trim its Official Cash Rate to 2.75% from 3.00%. Although no press conference is scheduled, traders will closely examine the accompanying Rate Statement for any hint of a shift in tone or guidance that could move the New Zealand dollar (NZD).
Later in the U.S. session, attention turns to the FOMC Minutes, which could offer valuable insight into the Fed’s current stance – particularly important given the data vacuum caused by the shutdown.
To round out the day, ECB President Lagarde and several Federal Reserve officials including Musalem, Barr, Goolsbee, Logan, and Kashkari are set to speak. Markets aren’t expecting major surprises, but even a subtle shift in policy tone could inject short-term volatility into markets.
Looking Ahead
With uncertainty persisting in Washington and central banks back in focus, markets may remain choppy in the near term. Traders should stay alert for shifts in tone from policymakers and keep an eye on key levels in USD/JPY and gold as sentiment continues to evolve.
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