The US Dollar is gaining against G10 currencies due to political uncertainty in the US and France. President Trump has offered to negotiate after reopening the government, but the shutdown continues with little progress. In France, President Macron has asked outgoing PM Lecornu to pursue coalition talks, a difficult task because the governance of the National Assembly has been hindered since last year’s snap election. Overnight, the NZD and AUD weakened because of poor consumer sentiment figures, while EUR and CHF are trading cautiously.

Swiss FX Reserves Increase

Switzerland’s foreign exchange (FX) reserves increased by CHF10 billion in September. The JPY and GBP have seen small losses against the USD, while CAD and MXN show slight declines but perform better on other pairs. Mild risk appetite exists as US equity futures approach record highs. US Treasury yields are recovering and approaching local highs. Oil prices face challenges in continuing recovery, while copper stabilizes. Gold is well supported, nearing $4000/oz. Delays in US trade data are expected because of the shutdown, with inflation expectations figures from the NY Fed remaining. Comments from Fed officials include Bostic, Bowman, Miran, and Kashkari, anticipating a possible rate cut at the next FOMC meeting. Given the strong US Dollar, there is continued value in maintaining long USD positions against currencies facing local difficulties. The ongoing US government shutdown, now in its second week, is creating uncertainty similar to the 16-day shutdown in 2013 that temporarily slowed economic growth. Traders should consider buying at-the-money call options on the U.S. Dollar Index (DXY) for further potential gains. The unusual difference between strong US equity futures and cautious sentiment in the currency markets presents an opportunity. While stock markets are near record highs, the VIX has quietly increased from 14 to 19 over the past month, signaling growing anxiety underneath. We believe buying inexpensive, out-of-the-money put options on the S&P 500 serves as a sensible protection against a sharp reversal caused by political gridlock.

US Treasury Yields and Fed Policy

Rising US Treasury yields are directly challenging the market’s expectations for a Federal Reserve rate cut on October 29. With the latest September Consumer Price Index (CPI) data showing core inflation steady at 3.1%, the Fed may disappoint those hoping for a relaxed policy. Traders could use options on Fed Funds futures to prepare for a hawkish surprise, where the Fed keeps rates steady instead of cutting. In Europe, political instability in France continues to impact the Euro, with the gap between French and German 10-year bond yields widening to 85 basis points. This political risk premium makes shorting the Euro an appealing trade. We favor buying EUR/USD put options that expire in late November to take advantage of this ongoing weakness. Gold’s approach to the critical $4,000 per ounce level demonstrates strong demand for safe-haven assets that is unaffected by the strong dollar. The rise in gold from below $3,000 earlier in 2025 has been driven by central bank purchases and geopolitical tensions. A decisive break of this psychological barrier could trigger a rapid upward movement, making long call options on gold futures or ETFs an attractive momentum trade. The Australian and New Zealand dollars are particularly at risk, suffering from both weak local consumer confidence figures and the strong USD trend. These currencies are likely to underperform as global risk sentiment declines. We would look to short AUD/USD futures, as Australia’s connection to a stabilizing copper price offers limited support.

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