Core Insights - The dollar index fell by -0.06%, reaching a 1-week low, primarily due to the US government shutdown and weak labor market data [1] - The unexpected decline in the September ADP employment change by -32,000, the largest drop in 2.5 years, has increased the likelihood of a Fed rate cut to 100% for the upcoming FOMC meeting [2][3] - The ISM manufacturing index for September rose to a 7-month high of 49.1, which provided some recovery for the dollar after its initial losses [1][3] Labor Market - The September ADP employment change unexpectedly fell by -32,000, contrasting with expectations of a +51,000 increase, marking the largest decline in 2.5 years [2] - The August ADP employment figure was revised down from +54,000 to -3,000, indicating a weaker labor market than previously thought [2] Manufacturing Sector - The ISM manufacturing index increased by +0.4 to 49.1, surpassing expectations of 49.0, indicating a stronger manufacturing sector [3] - The ISM price paid sub-index fell by -1.8 to an 8-month low of 61.9, which was weaker than the expected 62.7 [3] Eurozone Insights - The euro rose by +0.02%, supported by dollar weakness and an upward revision of the Eurozone September S&P manufacturing PMI to 49.8 [4][5] - Eurozone September CPI increased by +2.2% year-on-year, aligning with expectations, while core CPI remained unchanged at +2.3% year-on-year [5] Central Bank Divergence - The market perceives the ECB as nearing the end of its rate-cut cycle, while the Fed is anticipated to cut rates approximately two more times by the end of the year [5][6] - Swaps indicate a 1% chance of a -25 basis point rate cut by the ECB at the October 30 policy meeting [6] Currency Movements - The USD/JPY fell by -0.55%, with the yen reaching a 2-week high against the dollar due to increased safe-haven demand following the US government shutdown [7] - Positive economic indicators from Japan, including an increase in the Q3 Tankan large manufacturing sentiment index and an upward revision of the September S&P manufacturing PMI, contributed to the yen's strength [7]

Economic Indicators - The US September ADP employment change unexpectedly fell by 32,000, marking the largest decline in 2.5 years, and August's figure was revised down to a loss of 3,000 from a previously reported gain of 54,000 [2] - The US September ISM manufacturing index rose by 0.4 to a 7-month high of 49.1, exceeding expectations of 49.0, while the ISM price paid sub-index fell by 1.8 to an 8-month low of 61.9, below expectations of 62.7 [3] Currency Movements - The dollar index (DXY) is down by 0.19% at a 1-week low, influenced by the US government shutdown and weak labor market data, which increased the likelihood of a Fed rate cut to 100% for the upcoming FOMC meeting [1] - The euro (EUR/USD) is up by 0.09% at a 1-week high, supported by dollar weakness and an upward revision to the Eurozone September S&P manufacturing PMI [4] - The USD/JPY is down by 0.61%, with the yen reaching a 2-week high against the dollar due to increased safe-haven demand following the US government shutdown and positive Japanese economic indicators [7] Central Bank Policies - The market anticipates that the ECB is nearing the end of its rate-cut cycle, while the Fed is expected to implement approximately two more rate cuts by the end of the year [5] - Swaps are pricing in a 1% chance of a 25 basis point rate cut by the ECB at the October 30 policy meeting [6]

Market Impact of Government Shutdown - The government shutdown is expected to have a limited economic impact unless it extends for a longer period [2][3] - The underlying trends in the market are likely to continue, with a delay in data reporting and potential volatility in equities and bonds [3][5] US Dollar Outlook - The shutdown is anticipated to contribute to a weaker US dollar, which is seen as the path of least resistance in the coming days and weeks [4][5] - Recent corporate rebalancing flows have shown a tendency for dollar weakness, indicating a long-term reduction in exposure to the dollar [5] Market Reactions to Economic Data - There is a concern that the market may overreact to the ADP employment number due to the absence of other key data points like jobless claims and NFP [6][8] - This overreaction could lead to short-term volatility, but it is not expected to establish new trends [8] Treasury Yields - The US ten-year Treasury yield recently hit an intraday low of 3.98%, but it is not expected to go significantly lower [9][10] - While the shutdown may lead to some short-term Treasury buying, the overall outlook suggests more upside risk for yields rather than downside [10]

Group 1: Dollar Index and Labor Market - The dollar index (DXY00) is down by -0.29% due to speculation of weak US labor market news prompting the Fed to continue cutting interest rates [1] - The upcoming risk of a US government shutdown is negatively impacting market sentiment towards the dollar [1] - The dollar recovered slightly after August pending home sales rose by +4.0% month-over-month, exceeding expectations of +0.4% [2] Group 2: Federal Reserve and Economic Indicators - The September Dallas Fed manufacturing activity survey unexpectedly fell by -6.9 to -8.7, weaker than expectations of an increase to -1.0 [3] - Cleveland Fed President Beth Hammack's hawkish comments suggest inflation will not return to the Fed's 2% objective until late 2027 or early 2028, indicating a need for a restrictive policy stance [3] - Markets are pricing in an 89% chance of a -25 basis point rate cut at the next FOMC meeting on October 28-29 [3] Group 3: Eurozone Economic Performance - The euro (EUR/USD) is up by +0.29% due to dollar weakness and supportive economic news from the Eurozone [4] - The Eurozone's September economic confidence index rose unexpectedly by +0.2 to 95.5, stronger than expectations of 95.3 [5] - ECB Governing Council member Makhlouf stated that the ECB is "near the bottom" of its rate-cutting cycle, indicating a potential end to rate cuts [6] Group 4: Japanese Yen and Bank of Japan - The USD/JPY is down by -0.62%, with a weaker dollar supporting the yen [7] - An upward revision to Japan's July leading index CI to a 4-month high is bullish for the yen [7] - Hawkish comments from BOJ board member Noguchi regarding the need for a BOJ interest rate hike have also contributed to the yen's strength [7]