The US Dollar is gaining strength against G10 currencies, driven by political uncertainty in both the US and France. Despite President Trump’s offer to negotiate after reopening the government, the shutdown continues with little progress. In France, President Macron has asked outgoing PM Lecornu to continue coalition talks. This is difficult since effective governance in the National Assembly has been weak since last year’s snap election. Overnight, the NZD and AUD fell due to poor consumer sentiment data, while the EUR and CHF are trading cautiously.

Swiss FX Reserves Increase

Switzerland’s foreign exchange reserves rose by CHF10 billion in September. The JPY and GBP have seen small losses against the USD. Meanwhile, the CAD and MXN show slight declines but are performing well compared to other currencies. Mild risk appetite is present as US equity futures approach record highs. US Treasury yields are recovering and nearing local highs. Oil prices are struggling to maintain their recovery, while copper is steady. Gold is well-supported and nearly reaching $4,000 per ounce. Delays in US trade data are anticipated due to the shutdown, while NY Fed’s inflation expectations data remains. Federal Reserve officials, including Bostic, Bowman, Miran, and Kashkari, are discussed in anticipation of a potential rate cut at the next FOMC meeting. With the US Dollar’s strength, we recommend holding long positions against currencies facing domestic challenges. The ongoing US government shutdown, which is now in its second week, is creating uncertainty similar to the 16-day shutdown in 2013 that briefly slowed economic growth. Derivative traders might consider buying at-the-money call options on the U.S. Dollar Index (DXY) to capture more upside potential. The unusual difference between strong US equity futures and cautious sentiment in the currency markets presents an opportunity. While stock markets are nearing record highs, the VIX has risen from 14 to 19 over the past month, indicating increasing nervousness. We suggest buying inexpensive, out-of-the-money put options on the S&P 500 as a smart hedge against a sharp market reversal due to political gridlock.

US Treasury Yields and Fed Policy

Rising US Treasury yields are challenging the market’s expectations of a Federal Reserve rate cut on October 29. The recent September CPI showed core inflation staying at 3.1%, which may disappoint those hoping for a dovish approach. Traders could use options on Fed Funds futures to prepare for a hawkish surprise, where the Fed keeps rates steady instead of cutting. In Europe, continued political instability in France is weighing on the Euro. The gap between French and German 10-year bond yields has widened to 85 basis points. This political risk premium makes shorting the Euro an attractive strategy. We recommend buying EUR/USD put options with expiration in late November to take advantage of this ongoing weakness. Gold’s approach to the vital $4,000 per ounce level indicates strong demand for safe-haven assets, despite the strong dollar. The rally from below $3,000 earlier in 2025 has been fueled by central bank purchases and geopolitical tensions. A decisive move past this psychological barrier could lead to a quick increase, making long call options on gold futures or ETFs an appealing momentum trade. The Australian and New Zealand dollars are particularly at risk, impacted by weak domestic consumer confidence and the strong USD trend. These currencies may struggle as global risk sentiment declines. We would consider shorting AUD/USD futures, as Australia’s reliance on a stabilizing copper price offers little support. Create your live VT Markets account and start trading now.

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