US lawmakers failed to reach a last-minute deal on funding the government last night, triggering the first federal shutdown in close to seven years. Aside from the last government closure, these confrontations have usually been resolved in a matter of hours or days, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

US equity futures soften on federal government shutdown news

"But there is no sense that the two sides were even close to an agreement and little to indicate how long the government closure will last. The 2018/19 shutdown was the longest in recent history at 35 days. The USD weakened in response to the developments—as it did in the early stages of the last shutdown when it fell nearly 2%. The shutdown may trigger government worker furloughs or layoffs and will halt the publication of key government data releases—such as Friday’s NFP report—which will compound investor concerns about the status of the US economy."

"The JPY is leading G10 FX gains on the day, bolstering a mild pick up in broader yen bullishness that has developed over the past week or so (reflected in a mildly better bid for short-term JPY calls over puts) but currency gains are not universal. The EUR has leaked off earlier highs, despite positive Eurozone data, while the CAD and the CHF are net lower on the day at the moment—if only marginally so. US equity futures are lower while Treasuries are flat."

"Gold is trading at a new high ($3888) which is a reflection of haven demand on the shutdown uncertainty and a reflection of the soft USD tone as short-term spreads continue to compress. Private sector data will continue to be released—such as today’s ADP jobs data and ISM reports—but the lack of official data may leave markets searching for a stronger sense of direction beyond the initial hit to the USD that may develop in the coming days.