The US Bureau of Labor Statistics has stopped releasing Nonfarm Payrolls data due to a federal government shutdown. This comes after the US ISM Manufacturing PMI rose to 52.6 in January, surpassing expectations of 48.5, along with an improved Employment Index at 48.1. Kevin Warsh has been nominated to replace Jerome Powell as Fed Chair. In the currency markets, the US Dollar Index (DXY) stands at 97.60, with USD/CHF showing the biggest daily change. The USD/CAD pair is around 1.3680, as the Canadian Manufacturing PMI increased to 50.4, indicating growth. AUD/USD is trading near 0.6950. EUR/USD is about 1.1790, while USD/JPY is near 155.70 ahead of the Japanese election. Gold is priced near $4,700, down from a record high of $5,598 last week. It is usually considered a safe investment during uncertain times. Central banks from China, India, and Turkey added 1,136 tonnes of gold to their reserves in 2022. Gold prices are affected by geopolitical events, interest rates, and the US Dollar, which often moves opposite to the price of gold. With the Nonfarm Payrolls report on hold because of the US government shutdown, we lack crucial economic data, leading to significant uncertainty. We can expect increased market volatility in the coming weeks. A similar situation occurred in October 2013, when a shutdown delayed the jobs report, causing erratic price movements once the data was finally published. The strong ISM Manufacturing PMI of 52.6 is now the market’s main focus, suggesting a strengthening US economy. Coupled with the hawkish nomination of Kevin Warsh to lead the Fed, this suggests we should support the US dollar. We might consider buying call options on the Dollar Index (DXY) or put options on pairs like EUR/USD to take advantage of this trend while limiting our potential losses. Gold has sharply pulled back from its record highs above $5,500 due to the stronger dollar. However, the political uncertainty from the shutdown provides support for prices, as central bank demand remains strong through 2025, with net purchases exceeding 1,000 tonnes for the second consecutive year. This volatile environment is great for selling covered calls against existing long positions to earn extra income. We should also watch for significant price movements in other currencies. With a 25 basis point rate hike from the Reserve Bank of Australia nearly fully priced in, we could see a “sell the news” reaction in AUD/USD. In Japan, the upcoming general election brings political risk, making long volatility strategies like a straddle on USD/JPY an interesting option.

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