The Morning Update

The USD is weaker, oil prices are slipping, equities are higher, and U.S. yields are climbing as markets react to the government shutdown and growing rate-cut expectations. The USD continues under pressure as investors brace for extended Fed rate cuts, with sentiment further dampened by the government shutdown. Analysts see the greenback facing prolonged weakness, even as some safe-haven flows limit the downside.Global equities pushed to fresh highs, led by a surge in technology shares after OpenAI’s record-breaking share sale lifted optimism around artificial intelligence. The Nasdaq 100 gained in futures trade, Europe’s Stoxx 600 rose 0.7% on tech strength, and Asian equities advanced past last month’s record close. Investors are balancing enthusiasm from resilient earnings and rate-cut prospects against risks from the ongoing U.S. government shutdown, which has delayed key economic data like nonfarm payrolls. Money markets now see a Fed cut at the end of October as nearly certain, with an 80% chance of another in December. “If you really dig into the labor market data, it’s not just an AI structural story, it’s not just a lower immigration story, you are seeing that cyclical demand weakness,” Kim Crawford, global rates portfolio manager at JPMorgan Asset Management, told Bloomberg TV. “The clearest part to this puzzle is wage growth, there is a lack of wage growth in the US.” Elsewhere, oil prices slipped to 16 week lows as traders weighed the prospect of additional OPEC+ output, adding pressure to the market. Bitcoin extended its rebound, edging closer to the $119,000 level, while gold held steady near record highs around $3,904 per ounce on persistent safe-haven demand. Focus will be on the US Challenger Job Cuts for direction, while government Jobless & Factor Orders have been delayed due to the government shutdown.

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In the news. The US government remains shut as senators fail to agree a funding plan. The US pledges to defend Qatar against 'any attack'. China curbs use of Nokia and Ericsson in telecoms networks. Japan is days away from running out of Asahi Super Dry after cyber attack. The US to give Ukraine intelligence on long-range energy targets in Russia. OpenAI valuations soars to $500 billion, topping Musk's SpaceX. The Bank of Canada mulled September hold amid strong consumption. Alberta pitches new pipeline to boost oil exports to Asia. The Supreme court's cook decision gives the Fed breathing room, for now. The US has more private equity funds than McDonald's, KKR partner says. Goldman Sachs sees more upside for Gold on private interest.

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In currency markets. The Japanese yen firmed against the U.S. dollar as traders looked ahead to potential signals from the Bank of Japan on policy tightening. The Swedish krona and New Zealand dollar also gained ground, supported by broader dollar softness and improved risk sentiment. CNY and Asian currencies on average are flat against the USD. Trading currencies mostly edge higher, with MXN, AUD and NOK flat, CHF, KWD, DKK, CZK, and ZAR up 0.15%, NZD, SEK, JPY and PLN firmed by 0.25%.

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CAD is steady in early trading, holding close to a recent four-month low against the USD. A sharper contraction in Canada’s manufacturing sector, with the PMI falling to 47.7, weighed on sentiment and supported expectations of another Bank of Canada rate cut. Investors are now pricing in a 55% chance of a 25-basis-point cut at the October 29 meeting, following last month’s first cut since March. The BoC minutes also showed plans to release fresh baseline projections for growth and inflation, reflecting reduced uncertainty around U.S. tariffs. Policymakers acknowledged that inflation risks are easing, with lower labour, shipping, and material costs helping to contain price pressures. However, concerns remain around weak business investment, a softer labour market, and slower population growth, which could dampen economic momentum into year-end.

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EURCAD is holding near multi-year highs as the euro strength contrasts with the Canadian dollar weakness. Softer Canadian manufacturing data has reinforced expectations of further BoC easing, keeping pressure on the loonie. Meanwhile, sticky Eurozone inflation has supported the case for the ECB to remain cautious, adding to the pair’s bullish bias.

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EUR is firming against the USD as political gridlock in Washington and the government shutdown weigh on the greenback. With economic data releases delayed, investors worry that the Fed will have less visibility to guide policy, adding to dollar weakness. Markets are nearly fully pricing in a Fed rate cut later this month, with expectations of more easing to follow. In contrast, eurozone inflation data has underscored the ECB’s cautious stance, supporting the single currency. The combination of U.S. uncertainty and steady ECB policy has kept EUR/USD supported near recent highs.

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GBPEUR is steady as markets weigh diverging central bank signals. BoE’s Mann highlighted lingering U.K. inflation pressures, suggesting cuts may be slower, while recent eurozone data has reinforced expectations that the ECB will hold rates steady. With both banks cautious, traders await upcoming speeches and data for fresh direction.

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GBP has strengthened since September 26, partly helped by the BoE’s Catherine Mann cautioning that inflation pressures may persist longer than expected and that policy should remain restrictive until the upside risks subside. BoE commentary suggests that rate cuts might be delayed or more gradual, reinforcing support for sterling. The U.S. government shutdown has added pressure to the dollar, increasing the upside potential for GBP/USD as markets price in further dollar softness. Uncertainty over delayed U.S. data has amplified the impact of BoE signals on sterling’s strength.