US Government Shutdown May Derail Cautious Rebound in Market Mood

Talking Points:

• Japanese Yen, Swiss Franc drop as S&P 500 futures hint at risk recovery
• British Pound continues to find strength in hawkish BOE forward guidance
• US government shutdown might sour sentiment absent a swift resolution

The Japanese Yen and Swiss Franc declined in otherwise quiet Asia Pacific trade. Regional shares declined, echoing the plunge on Wall Street, but S&P 500 futures turned higher to hint that sentiment trends may stabilize into the week-end. That seemed to inspire a pullback in the two standby anti-risk currencies. The British Pound continued to rise, buoyed by yesterday’s hawkish BOE policy announcement.

Looking ahead, a quiet European economic calendar offers few market-moving catalysts. FTSE 100 futures are pointing lower ahead of the opening bell in London, but this may be reactive rather than forward-looking. That might mean that FX markets continue to focus contracts tracking US equity benchmarks, mirroring price action in APAC trading hours.

For that to translate into continuation of current moves however, signs of a risk appetite recovery need to be sustained. A looming US government shutdown may undermine optimism however. A group of deficit hawks within the Republican party have blocked a bipartisan budget deal. The last stop-gap funding measure expired Thursday. If a compromise is not quickly reached, sentiment may sour anew.

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Asia Pacific Trading Session

European Trading Session

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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