The DXY Index’s rebound to late-July’s 100 level reflects a confluence of near-term supporting factors – Fed Chair Jerome Powell’s pushback on a December rate cut amid tight funding conditions and haven demand as the US government shutdown enters its second month. The greenback’s current firmness looks more like a squeeze than a new uptrend. Once the shutdown ends and US data releases resume, attention will likely return to the softening labour market inferred from high-profile corporate layoffs, many of which stem from firms pivoting towards AI solutions. US Treasury Secretary Scott Bessent has begun warning of rising recession risks to counter the Fed’s caution to lower rates. It bears watching how the Trump administration assesses the current strength of the USD, given its stated goal of achieving a more competitive USD to support its MAGA agenda.
The Virginia and New Jersey gubernatorial elections could prove pivotal in breaking the fiscal deadlock. Intense voter backlash in these states, both of which are exposed to furloughed federal workers, would increase pressure on Congress to compromise and reopen the government. Their outcomes will serve as an early gauge of the 2026 midterm elections. Recent polls showed the Democratic candidates holding a small lead against over their Republican rivals. These elections are being watched in Washington, less for the political parties’ policy platforms and more for the voters’ tolerance of Trump’s brinksmanship style of governance, i.e., escalating pressure, triggering visible pain, and claiming credit for the eventual deal. If the Democrats win decisively, it will strengthen the moderates in both parties to push the administration toward a compromise before Thanksgiving to reset the political tone. Conversely, Trump would interpret Republican victories as validating his high-stakes style. The stakes are also heightened by the Supreme Court’s decision on Trump’s use of the International Emergency Economic Powers Act (IEEPA) to justify sweeping tariffs – likely before the end of 2025, following today’s oral arguments.
Quote of the Day
“You can only get good at chess if you love the game.”
Bobby Fischer
November 5 in history
In 1992, American chess grandmaster Bobby Fischer defeated Russian Boris Spassky in an unofficial match in Belgrade dubbed the "Revenge Match of the 20th Century".
Topic
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