The US Dollar stayed stable on Thursday, with the USD Index near 98.00 as the government shutdown persists. This shutdown has delayed September’s Nonfarm Payrolls data, increasing focus on the ISM Services PMI report for the month. This week, the US Dollar showed mixed shifts against major currencies. It fell 1.31% against the Japanese Yen, but gained 1.34% from JPY. In Washington, President Donald Trump met with Russ Vought to discuss possible cuts to federal programs and froze $26 billion meant for states that lean Democratic.

Japanese Economic Data and the Dollar

In Japan, economic figures indicated that unemployment climbed to 2.6% in August. Bank of Japan Governor Kazuo Ueda commented on inflation and political developments. The USD/JPY pair made a slight gain, recovering from a four-day decline. Gold experienced significant fluctuations on Thursday and closed slightly lower. On Friday morning, it was around $3,860. The EUR/USD pair stayed above 1.1700 as we awaited PPI data. Meanwhile, GBP/USD traded at about 1.3450 despite a slight recovery of the USD. With the government shutdown entering its third day, we can expect increased market volatility. The holdup of the important Nonfarm Payrolls report means traders will respond more strongly to other data, creating short-term trading chances. We can use options strategies, like straddles, to benefit from the expected sharp price changes in major USD pairs without having to predict the direction. Everyone will be looking closely at the ISM Services PMI report today, as it is the key economic data for the week. Data from 2023 and 2024 shows that the services sector often stays strong. A solid reading today could drive the US Dollar Index back up, while a weak result might confirm a slowdown and lead to a significant drop in the dollar.

Market Implications of the Shutdown

It’s important to consider past shutdowns for perspective. The longest one, in 2018-2019, lasted 35 days. During that time, the dollar showed volatility but did not collapse, indicating the markets often anticipate a resolution. This history suggests that any panic selling of the dollar in the coming days could create a good buying opportunity. The Japanese Yen is notable this week, as it has been the strongest currency against the dollar. This is a typical safe-haven movement, but with the LDP leadership election happening on Saturday, there is significant political uncertainty in Japan. Any surprises from that election or changes from the Bank of Japan could quickly reverse the yen’s recent uptrend. Finally, we should prepare for a surge of volatility once the shutdown ends and delayed data is released. The market will be processing weeks’ worth of information all at once, likely leading to erratic price movements. 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; therefore, this backlog of releases will create an unpredictable environment. Create your live VT Markets account and start trading now.

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