Confusion Caused by U.S. Federal Shutdown Intensifies in Two Directions – Currency Thoughts
Confusion Caused by U.S. Federal Shutdown Intensifies in Two Directions
November 7, 2025
Every day now brings a new record duration in the current U.S. federal government shutdown. Neither political side of the stalemate has found an advantageous way to compromise without appearing to lose. The pain level took a big step upward yesterday when the Transportation Department ordered significant reductions in scheduled flights. Cancelled flights were the catalyst for ending the previous federal shutdown record-holder. A second channel through which markets are having to deal with the shutdown has been the extended absence of comprehensive U.S. economic data pertaining to the Federal Reserve’s two mandates of price stability and employment. From a policy change standpoint, all this is happening when the signaled appropriate direction of policy signaled by the two mandates are in conflict. Inflation has stalled above the Fed’s 2% mandate, which has been exceeded already without interruption for several years and with the full possible effect of tariff hikes not yet having been felt. This mandate warrants utmost caution, as indicated yesterday by Chicago Fed President Goolsbee. However, employment growth has slowed notably according to private data sources such as the monthly challenger report that indicated the most layoffs last month of any October since 2003, going back before the pandemic or the financial crisis that happened over a decade earlier. In the absence of the various government-collected labor market surveys is the contribution breakdown to softer jobs growth between demand and supply sources. Private data do not exactly point to a collapsing labor market, but a wider array of information is needed to confirm that.
What all this means is that financial market conditions are ripe for spurts of risk aversion, and today has so far seen more of that.
The dollar still not replaced at the go-to currency in times of uncertainty. Even though U.S. economic and foreign policies have caused much of the world’s current elevation of uncertainty. Losses overnight were limited to 0.1% against the Swiss franc, euro, and Canadian dollar, while the greenback separately rose 0.7% against the South Korean won, 0.3% relative to the Turkish lira, and 0.1% versus the Japanese yen and sterling.
Gold rose 0.5% overnight and is back above $4,000 per ounce. WTI oil meanwhile climbed 1.0%, while Bitcoin sank 1.3% amid concerns about a tech sector bubble.
Ten-year sovereign debt yields slid a basis point in Japan but climbed four bps in the U.K., two bps in Germany and France, and by a basis point each in the United States, Italy, and Spain.
The SPX 500, DOW, Nasdaq and Russell 2000 indices in pre-open futures trading currently show declines of 0.3-0.6%. Stock markets in the Pacific Rim closed down 1.8% in South Korea, 1.2% in Japan, 0.9% in South Korea and 0.7% in Australia. Major stock exchanges in Europe are lower too, including drops of 1.0% in Spain and 0.8% in Germany.
In Mexico where inflation of 3.8% is within the 2-4% target window and real GDP has lately contracted, the Bank of Mexico late yesterday implemented another basis point cut. The 25-basis point move was the twelfth since March 2024, joining 7 other cuts of that size plus four cuts of 50 basis points each. At 7.25%, the new level is its lowest since early June 2022 and four full percentage points below the cyclical high first reached in March 2023. A released statement reveals one dissenting vote for no rate change but signals more likely easing in the future:
The Board will evaluate reducing the reference rate. It will take into account the effects of all determinants of inflation. Actions will be implemented in such a way that the reference rate remains consistent at all times with the trajectory needed to enable an orderly and sustained convergence of headline inflation to the 3% target during the forecast period.
Data highlights reported around the world today include trade balances in China and Germany.
- China’s $90.1 billion surplus in October after surpluses of $90.5 billion in September and $102.3 billion in August was its smallest in 8 months and lower than forecast due to weaker import growth. The year-to-date surplus of $965 billion was almost 23% wider than the surplus that accrued in January-October of 2024. China also disclosed a $4.7 billion rise in the value of its international reserves last month and of $51 billion since the end of July, reflecting dollar appreciation in that period.
- Germany’s seasonally adjusted trade surplus narrowed 9.5% to an 11-month low of $15.25 billion in September. The unadjusted surplus of EUR 17.3 billion reflected year-on-year growth of 5.3% in exports and 7.5% in imports.
- The French current account balance swung from a surplus of EUR 0.33 billion in January-September of 2024 to a deficit of EUR 13.1 billion one year later.
Among price statistics today,
- Mexican CPI inflation of 3.57% in October was close to the recent low of 3.51% in July and down from 8.7% in September 2022.
- Chilean consumer price inflation of 3.4% last month was at a 53-month low and down from 13.3% in November 2022.
- Brazilian producer prices edged 0.25% lower in September and 0.4% below their year-earlier level, having posted year-on-year increases of 9.7% last January and 36.8% in June 2021.
- Austrian wholesale price inflation returned from September’s 8-month high of 1.2% to August’s 0.2% reading in October.
- Estonian CPI inflation slowed to a 5-month low of 4.6% in October. Such previously dropped from 24.8% in August 2022 to as low as 2.5% in mid-2024.
- The British Halifax house price index rebounded from a 16-month year-on-year low of 1.3% in September to 1.9% last month.
The United States is experiencing a data release deficiency, but that’s not the case in its northern neighbor, whose economy is strongly affected by U.S. trends. The two countries tend to report labor market statistics on the first Friday of the ensuing month. That didn’t happen today in the U.S., but Canada reported better-than-forecast parameters a short while ago. Canadian joblessness dropped 0.2 percentage points to 6.9%. Employment in Canada, which rose by a robust 60.6k in September and had been expected to stagnate last month, instead shot up another 66.6k. These non-recessionary signals were accompanied by an acceleration of average hourly wage growth.
Swiss consumer confidence last month matched September’s depressed reading of -37, which compares to -29 at the start of 2025.
Household spending in Japan posted a smaller-than-expected year-on-year 1.8% rise in September.
On-year GDP growth in the Philippines of 4.0% last quarter was its weakest advance in four and a half years.
Between September 2024 and September 2025, industrial production rose by 20.6% in Norway, 5.7% in Malaysia and 3.4% in Denmark.
Copyright 2025, Larry Greenberg. All rights reserved.
Tags: Bank of Mexico, Canadian labor market data, Chinese trade surplus, German trade surplus
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