The U.S. dollar posted a slight gain on Wednesday as market volatility eased, with investors awaiting the final congressional vote to end the U.S. government shutdown, which has lasted for more than 40 days. This calm tone reflects traders’ caution as they wait for greater political clarity before taking new positions in the market.
The dollar recovered part of its previous losses after declining on the release of the ADP employment report, which showed a slowdown in hiring during October. Despite concerns about a softer labor market, the greenback found support from rising expectations of an interest rate cut in December, with markets now pricing in around a 62% chance of a 25-basis-point reduction, signaling that investors are betting on a more flexible approach from the Federal Reserve in the coming period.
The British pound weakened against the euro following the release of UK unemployment data for September, which came in below expectations, pushing the EUR/GBP pair above the 0.8800 level. The soft labor figures increased concerns about a slowdown in the British job market, particularly amid ongoing doubts over the reliability of the Labour Force Survey, which was recently revised.
Political tensions in the U.K. have also intensified, with growing speculation that Prime Minister Keir Starmer could face a leadership challenge after the upcoming budget announcement later this month. Such a scenario could create uncertainty around the government’s stability and the future of Chancellor Rachel Reeves, prompting investors to reduce exposure to British assets.
The pound remains pressured by a combination of tight fiscal policy that limits growth and a more accommodative monetary stance from the Bank of England. This policy divergence, coupled with rising political uncertainty, strengthens expectations for further downside pressure on the currency in the near term.
The euro also edged lower to around 1.1570 after data confirmed that German inflation slowed to 2.3%, reinforcing expectations that the European Central Bank will keep policy unchanged. Meanwhile, the pound extended its decline toward 1.3120, weighed by weak employment data and the persistent political uncertainty surrounding potential leadership challenges.
In Asia, the USD/JPY pair climbed to around 154.70, supported by improved risk sentiment and expectations of more expansionary fiscal policies under Prime Minister Sanae Takaichi. The pair faces strong resistance near 155.00, a key psychological level that could prompt verbal intervention from Japanese authorities to curb yen weakness.
In China, the USD/CNY pair traded slightly higher near 7.1177, while the Australian dollar rose to 0.6538 after comments from the Reserve Bank of Australia suggesting that further rate hikes might be necessary to keep inflation under control.
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