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US dollar holds gains despite threat of possible US government shutdown

Good morning

The US dollar continues to hold recent gains with GBPUSD trading to 1.2140 and EURUSD to 1.0555, now 1.2155 and 1.0570 respectively. Feds Bowman did sound pretty hawkish, certainly keeping alive the notion of further US rate rises. GBPEUR stuck around 1.1500 and USDJPY up at 149.00 with no serious verbal intervention noted overnight and nothing particularly new from BoJ minutes.

There was intervention noted in China however with China state banks reportedly selling USDCNY in large quantities following yet another fix well below market levels. USDCNY did move lower from around 7.31 to 7.29, but has clawed its way back up above 7.30. It fixed 7.1717. China also introduced various rules designed to make life difficult to sell shares, in an attempt to slow stock market declines. China Golden week starts Friday.

I see Biden has taken up the fight with auto-workers in the US, saying UAW should seek a 40% pay increase for its workers. I don’t want to see anyone under paid but surely this is going to make car manufacturers unprofitable at a time when Chinese electric cars look set to become more mainstream. There are some decent vehicles coming out of China, or at least from companies owned by China. I mentioned Lotus the other day, owned by Geely. Their Eletre SUV is a thing of beauty. The US car workforce need to be careful.

Staying with the US, I haven’t really mentioned it but there is yet another threat of a government shutdown there, expected to last some 2-3 weeks according to Goldman Sachs. There should be a vote on Friday on short-term spending plans, at the moment the two sides seem too far apart to come to any agreement on spending proposals.

An agreement needs to be made before Sunday ort parts of the government will shut down. This will impact a huge range of services, and it means economic data may not be collected. This in turn means the Fed would not have full information at their next meeting although should be back up to speed by the December meeting. Moodys has warned of a possible rating move if the US government does shut down.

The next round of the rugby world cup begins this afternoon with Uruguay taking on Namibia, who will be hoping for a better result than their 96-0 defeat at the hands of France. Uruguay are favourites for this tie. New Zealand v Italy on Friday cold be interesting. We have to wait for 7th October for the next matches involving the home nations.

Not much on the calendar today, but focus will be on GBPUSD for the time being to see if it continues to lose ground and head towards the 1.2000 area. I did have a look at yen intervention trades yesterday, plenty to look at if you want to spend a lot of money but a cheaper way to get some downside interest in USDJPY or yen crosses is to add a reverse knock out. A one month 148.00 USDJPY put costs 140 yen pips, adding a 143.00 knock out brings that down to 50 yen pips. The risk of the lower premium is that we do see a move but it goes down through that 143.00 level and you end up with nothing to show for it.

- 13.30 US durable goods

- 14.00 SNB quarterly bulletin

- 02.30 AUS retail sales

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