Dollar rebounds, uncertainty reigns as US government stays shut

The dollar gained against the euro and yen on Thursday, with the greenback rebounding against the Japanese currency after four consecutive days of losses, as traders weighed the impact of a US government shutdown.

The shutdown leaves a gap in government data, including the closely watched monthly jobs report for September that was due to be released on Friday.

Still, with Federal Reserve and private data continuing to be released, the void may not be as bad as feared, said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

“That really misunderstands how the markets have evolved with private sector data,” Chandler said. “I don’t think that either the market nor the Fed is flying blind.”

A Chicago Fed report on Thursday, which combines private and available public data, estimated the September jobless rate was 4.3%, the same as in August and evidence that a feared rapid rise in unemployment had not yet begun.

But details of the report, along with other data, pointed to ongoing sluggishness in the labor market.

The dollar fell on Wednesday after the ADP National Employment report showed private payrolls decreased by 32,000 in September, boosting expectations that the Federal Reserve will cut interest rates two more times this year.

But the currency retraced that move on Thursday.

“A lot of people thought that with the government closing, the dollar would sell off. And I think that people got caught leaning the wrong way, and now are being forced out of positions,” Chandler said.

The dollar index was last up 0.13% on the day at 97.86. The euro fell 0.09% to USD 1.1719.

Traders see a 25-basis-point cut at the Fed’s October meeting as almost certain and are pricing in a 90% probability of an additional cut in December, according to the CME Group’s FedWatch Tool.

Dallas Fed President Lorie Logan on Thursday said the US central bank appropriately cut rates last month to guard against the risk of a sharp deterioration in the job market, but said that so far the cooling has been gradual and signaled she is not eager to cut rates further.

Against the Japanese yen, the dollar strengthened 0.08% to 147.17.

Traders are watching this weekend’s election to lead Japan’s ruling party for signs on how fiscal policy will influence the currency.

Sterling GBP= weakened 0.25% to USD 1.3443. Traders have started to assess the impact the UK November budget will have on the economy and sterling.

“In the UK there’s a focus on the fiscal situation,” said Eric Theoret, FX strategist at Scotiabank in Toronto.

In cryptocurrencies, bitcoin gained 2.24% to USD 120,218.

(Reporting by Karen Brettell, additional reporting by Joice Alves; Editing by Mark Potter, Gareth Jones, Emelia Sithole-Matarise and Deepa Babington)