Perhaps the most surprising feature of the Asian and European trading sessions has been that it took so long for the US Dollar to give back Friday’s gains. Last week, the USD index made four fresh lows on four different days at 89.99, 89.96, 89.92 and 89.89 before rallying on the final day to end around 90.35. At no point overnight has it traded higher than Friday’s close but it took almost 12 hours for the gains to be fully unwound and the index slipped to a low of 90.06 during the London morning. At midnight on Friday, the US government began to shut down; the first time ever that a party which controls the White House, Senate and House of Representatives has overseen a government shutdown. It is the 19th such occasion in the last 40 years. Four of these 19 have lasted just one day with the longest in 1995 lasting 21 days. During the last government shutdown in October 2013, 850,000 federal workers were laid off, equal to nearly 40% of the government workforce. The
shutdown lasted for 16 days, triggered by a disagreement over Obamacare. According to Standard & Poor’s, it cost the economy $24 billion. We don’t yet know the extent to which there is any genuine bipartisan desire to end the standoff. Senate majority leader, Mitch McConnell, has said he would allow a vote on immigration reform in February if Democrats agree to fund the government. The top Senate Republican said he would push for a Monday vote on a short-term deal to fund the government through 8 February, as well as extend a popular health insurance program called Chip that provides healthcare coverage to nine million children for six years. With no economic data scheduled for today, currency markets will continue to be buffeted by the progress – or otherwise – of political negotiations. It could be a very frustrating day. The US Dollar index opens in North America this morning at 90.10 with US 10-year bond yields at 2.65%; within 1bp of a fresh 40-month high.