Shutdown continues

CAD

The Canadian dollar weakened modestly overnight as investors sought refuge in US assets at the onset of the US government shutdown, though crude’s resilience limited losses. USD/CAD remains anchored near 1.40. Markets are increasingly focused on whether the BoC will match global peers in signalling earlier easing if fiscal uncertainty abroad dampens trade and growth. As we emphasised in our week-ahead, CAD’s near-term path is dominated by external drivers – particularly US politics and oil markets. For today, expect rangebound but choppy trading: escalation in the shutdown or renewed equity volatility could drive another move higher. Broader sentiment remains cautious as markets await clarity on both Washington and energy demand.

USD

The dollar opened the week mixed but has since firmed modestly as markets digest the first full US government shutdown in six years. Initial safe-haven demand lent brief support to the greenback, though gains were capped by concerns over the shutdown’s economic toll and the implications for the Fed’s policy path. Treasury yields fell across the curve as investors rotated into duration, reflecting expectations that an extended disruption could shave growth and strengthen the case for rate cuts later this year. Scott Bessent’s warning that fiscal credibility is “cracking at the core” of the US narrative has amplified those concerns, feeding structural bearish sentiment even as short-term positioning remains dollar-positive. For today, expect two-way volatility driven by shutdown developments and Fed commentary. Broader DXY direction hinges on how quickly Congress resolves the impasse – a prolonged closure would likely erode support for the dollar once haven demand fades.

EUR

The euro slightly weakened overnight as the US shutdown triggered a mild repricing in favour of lower US yields and narrowing rate differentials. Euro upside remains limited by persistent Eurozone growth concerns and subdued regional inflation pressures, as underscored in recent sentiment data. Our week-ahead view highlighted that while the euro could benefit tactically from US fiscal turmoil, its gains are likely to be capped by domestic stagnation and a still-cautious ECB. Today’s price action should stay headline-driven: further signs of prolonged US disruption could push EUR/USD toward the top of its recent range, while renewed global risk aversion would likely send it back down. Broader trend dynamics remain dollar-led until the fiscal standoff resolves.

GBP

Sterling traded defensively yesterday but has since stabilised, taking modest cues from improved global risk sentiment following an orderly initial market response to the US shutdown. The pound remains under its own fiscal microscope – Bessent’s broader comments on fiscal fragility resonated in the UK context, reinforcing our recent Monex view that gilt-market stability is key for sustained GBP support. The shutdown’s deflationary implications have slightly reduced global yields, offering some relief for rate-sensitive sterling assets. Near term, GBP/USD should remain rangebound, with direction guided by shutdown headlines, BoE commentary, and any signs of labour market softening in tomorrow’s UK data. A prolonged US impasse could ultimately weigh on global growth expectations and risk sentiment, limiting sterling’s topside.

This content was originally published by our partners at Monex Canada.