Red flags emerged over the USD Index (DXY) near the significant 100 level. National Economic Council Director Kevin Hassett warned that the longest government shutdown in US history may shave 1-1.15% off GDP growth in 4Q25. The Democratic Party’s victory at the state elections in Virginia, New Jersey, and New York sent a strong message from voters that they are feeling economic pain and are seeking state and local leadership to mitigate the effects of national policies that they perceive as detrimental to their financial well-being. Even if the Senate reaches a deal to end the shutdown, any USD rebound is likely to be a relief rally because of the erosion of trust in policymaking on Capitol Hill and leadership from the Trump administration.
New York Fed President John Williams kept the door open for a December rate cut to mitigate the economic pain of lower and moderate-income households facing affordability risks amid a labour market lacking strength and momentum. The New York Fed also reported that median 1Y inflation expectations slowed in October after three consecutive increases.
We see scope for USD/JPY to reverse October’s appreciation from 148 to 154. The Japanese Finance Ministry’s verbal interventions capped USD/JPY at 154.50 in the first week of November, adding that the exchange rate did not reflect the fundamentals indicated by interest rate differentials. The markets are positioning for a Fed cut and a rate hike by the Bank of Japan in December.
Following her early success in foreign affairs and diplomacy, Prime Minister Sanae Takaichi is facing her first test in governing in the current Diet session. The new Liberal Democratic Party (LDP)-Inshin coalition is untested and may prove less stable and predictable than the longstanding LDP-Komeito coalition (2012-2025) it replaced. The initial popular support Takaichi and her minority government enjoyed hinges on her ability to navigate the complex and competitive legislative environment to deliver her Abenomics-style policies. Her main economic growth blueprint will only be ready by next summer. Takaichi aims to build a strong economy based on targeted investment.
European currencies found support at critical levels in the first week of November. EUR/USD and GBP/USD floored at 1.15 and 1.30, respectively, while USD/CHF was capped at 0.81. The markets expect the European Central Bank and the Swiss National Bank to keep their policy rates unchanged in December. ECB members are split on the likelihood of inflation undershooting the 2% target. The SNB has ruled out negative rates because it viewed monetary policy as expansionary.
GBP recovered despite the BOE’s narrow 5-4 vote to resist a rate cut last Thursday. Markets regarded the decision as appropriately prudent ahead of the Autumn Budget scheduled for November 26. Although UK CPI inflation may have peaked, it remained high above the 2% target at 3.8%, slightly below the 4% bank rate, limiting the room to cut. Weeks of debate and cautious narrative have shaped expectations for the fiscally restrained Autumn Budget to deliver tax hikes and limited new spending within fiscal rules, leaving less scope for negative surprises.
Quote of the Day
“Anybody can jump a motorcycle. The trouble begins when you try to land it.”
Evel Knievel
November 10 in history
German engineer Gottlieb Daimler unveiled the world's first motorcycle in 1885.
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