It has indeed been the more defensive yen which has benefited the most from the US government shutdown, which went into effect overnight. The moves in FX markets have been modest so far, but investors will be wary that this could be one of the longer shutdowns seen over the last 30 years, ING's FX analyst Chris Turner notes.

DXY could drift towards the 97.20 area

"Shutdowns have typically lasted anywhere from three to 35 days. Presumably, Democrats are going into this shutdown eyes wide open, wanting to be known as the party that fought for healthcare when it comes to mid-term elections next November. And with Republicans controlling the congressional agenda and President Trump fully utilising his executive authority, the need for a 60-seat Senate approval for government funding is probably the only area in which the Democrats can flex their muscle."

"Prior performance is no guarantee of future returns, but previous shutdowns have typically seen bullish steepening of the US yield curve, a slightly softer dollar and mixed news for equities. Currently, S&P futures are called 0.5% lower. What is probably more relevant for FX markets is the context of this shutdown. When discussing the slowdown in US consumer confidence and the swing in sentiment towards jobs being harder to get. A government shutdown will feed into those trends – especially if President Trump follows through with threats to fire and not just furlough non-essential government staff. Remember that as many as 150k government staff lay-offs may hit the October non-farm payroll result as part of DOGE's austerity drive earlier this year. The shutdown also means we are unlikely to see weekly jobless claims on Thursday and the September payroll report on Friday."

"For today, it still looks like we will receive the September ADP employment report and the ISM manufacturing report. Consensus on the former is around +50k, and the dollar could be vulnerable to a downside miss. The ISM index is still expected to be sub-50 today, and the prices paid component will be closely watched. However, our team's core view remains that tariff-related goods price inflation will be softer than initially feared and that the softening in the labour market and rental trends means that services inflation is heading lower. That should allow the Fed to cut in October and December. DXY could drift towards the 97.20 area – with softer US equities probably a dollar negative in the current environment."