The US Dollar (USD) remains well supported with broad gains against all of the G10 currencies, building on Monday’s strength in an environment of elevated political uncertainty in the US and France, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD strengthening broadly against all G10 currencies

"The US government shutdown continues and signs of meaningful progress have been limited, despite President Trump’s offer to negotiate— once the government has been reopened. In France, President Macron has tasked outgoing PM Lecornu to continue talks in the hopes of building an effective coalition—an elusive goal that has escaped the President (and his succession of Prime Ministers) since last year’s snap election that rendered the National Assembly ungovernable. The distribution of FX returns across the G10 is mixed, with notable overnight weakness in NZD and AUD on the back of weaker than expected consumer sentiment figures."

"EUR and CHF are trading defensively, the former on the aforementioned political developments in France and the latter seemingly unable to capture the safe haven strength that would typically support it in periods of uncertainty. Switzerland’s FX reserves rose CHF10bn in September, according to official data released by the Swiss National Bank. The JPY and GBP are mid-performers among the G10, with only modest losses against the USD, while the CAD and MXN are seeing marginal declines and outperforming on the crosses—once again benefitting from closer geographical and economic ties to the US (and USD). The broader market’s tone is one of mild risk appetite as US equity futures remain well supported threatening fresh record highs."

"US Treasury yields have fully retraced their ADP -driven declines, and are also threatening a push to fresh local highs and a possible break of descending trend (50 day MA) resistance. In commodities, oil prices have struggled extend their latest recovery and copper is extending its post-rally consolidation. Finally, gold remains well supported and is hitting fresh highs in the upper $3900/oz area, threatening a break of the psychologically important $4000/oz level. In terms of data, US trade data for August are likely to be delayed as a result of the shutdown, leaving markets with only the NY Fed’s inflation expectations figures. Fedspeak includes Bostic, Bowman, Miran, and Kashkari. We look for any break from the consensus (and market pricing of) a cut at the next FOMC decision on October 29."