The federal funding lapse has forced investors to rely entirely on private indicators (ISM/ADP) for a clear reading on the US economy, putting pressure on the Dollar. Paradoxically, the key market driver today might be the European CPI figures, which analysts expect to support a restrictive ECB.
Key Insights:
The crucial question now pivots to the potential length of the US Government shutdown
Market Recap:
Despite positive US labour figures—specifically, better-than-expected August JOLT job openings and lower layoff numbers—the US Dollar (USD) continued its descent. This weakness stems largely from investor anxiety over the looming US government shutdown, which is expected to delay the release of crucial economic data, including this week's jobs report. Meanwhile, European sentiment was boosted by strong German inflation (CPI), solidifying expectations that the ECB will not cut rates soon. In the UK, a dovish warning from a Bank of England (BoE) official, Sarah Breeden, cautioned that excessively high rates could harm the economy.
Today's Market Watch:
The US Shutdown and European Inflation
The US government shutdown is now in effect after lawmakers failed to reach an agreement. The key question for markets is now the duration of the impasse.
What This Means:
US Dollar (USD) Pressure: A prolonged shutdown would likely contribute to further USD weakness as it signals political instability and poses a risk to economic growth.
"Flying Blind" on US Data: Crucially, the shutdown means the official Friday payrolls report is suspended. Markets will now rely heavily on private sector indicators for direction, specifically today's ISM Manufacturing PMI and the ADP private payroll figures.
European Direction:
CPI in the Spotlight: All attention in Europe turns to the release of EU-wide CPI (inflation) figures this morning.
Rate Expectations: Following yesterday's stronger German inflation data, the market expects a similar trend from the EU numbers. A hot CPI report would further solidify the belief that the European Central Bank (ECB) will keep interest rates elevated for the foreseeable future.
1st October 2025
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