USD under pressure on shutdown risk - BBH

A possible US government shutdown first thing Wednesday morning is keeping USD under downside pressure, supporting Treasuries and driving gold prices to new highs. The logic is that a government shutdown could lead to a more dovish Fed. If a shutdown is brief, the Fed will ignore it. However, a prolong shutdown (more than two weeks), increases the downside risk to growth and raises the likelihood of a more accommodative Fed, BBH FX analysts report.

Gold hits new highs as treasuries rally

Meanwhile, the shutdown threatens Friday's jobs report release. The US Labor and Commerce departments said yesterday that their statistics agencies would delay releases of economic data in the event of a partial government shutdown. Postponing the September non-farm payrolls report muddies the water for the Fed, depriving it of an important indicator for tracking downside risk to the economy at present.

Today, August JOLTS job openings data and September Conference Board Consumer Confidence index are noteworthy (both at 3:00pm London, 10:00am New York). Job openings are expected at 7200k vs. 7181k in July. If so the ratio of job openings to unemployed workers would slip 0.01 to 0.98, the lowest since April 2021, consistent with softer wages growth ahead and posing a headwind to consumer spending activity.

Consumer confidence is seen at 96.0 vs. 97.4 in August. But given the Fed's concern that downside risks to employment have risen, pay attention to the labor differential index (jobs plentiful minus jobs hard to get) of the Conference Board report. That index dropped 1.3 points to 9.7 in August, the lowest since February 2021 and indicative of a rapid rise in the unemployment rate. Bottom line: our base case is for the Fed to pivot more dovish by year-end, which will weigh on the USD and further fuel the rally in equity markets.