Shutdown showdown slows to stalemate

The U.S. government made slow progress over the weekend to reopen the government after it officially shut down Friday night, allowing for thousands of federal employees to be furloughed Monday.

However, a key vote in the Senate is scheduled for noon eastern time Monday to reopen the government and fund it for three weeks. A bipartisan group of 20 senators, led by Republican Sen. Lindsey Graham, put together this new proposal. It would provide stopgap funding until Feb. 8 and, at the same time, guarantee a vote on separate legislation that protects some undocumented immigrants brought to the U.S. as children from deportation.

This deal was largely overshadowed Sunday as White House aides and Graham publicly criticized each other over their views on immigration. The likelihood of the temporary funding bill getting enough votes on Monday to reopen the government is still up in the air.

The impact of the shutdown on the dollar is still to be determined. When the government shut down in 2013, it didn’t dramatically impact markets, so many analysts expect the markets to carry on this time around.

However, the dollar has been slipping recently against other major currencies that are posting multi-month and multi-year highs. The greenback’s weakness might be intensified by a government shutdown. Meanwhile, the White House did say that President Trump’s trip to Davos and the World Economic Forum this week is being reconsidered due to shutdown negotiations.

Politics push EUR/USD higher

On Sunday, Germany’s Social Democrats voted for formal coalition talks with Chancellor Angela Merkel, allowing her path to a fourth term to continue for now. The parties are preparing for talks to begin Tuesday. The news created a short uptick overnight during the Asian session, but the pair is now trading just below 1.2250.

We’ll get more direction for the pair during the European Central Bank’s monetary policy announcement and rate decision Thursday. Depending on the tone of ECB President Mario Draghi’s press conference, we’ll see if the pair breaks through 1.23.

Sterling softens on shopping data

Soft U.K. retail sales released Friday took a slight toll on the pound as GBP/USD tried to reach 1.40. December’s retail gave its worst performance since 2010.

Despite the U.K. data last week, the U.S. government shutdown is helping sterling and the pair is positioned to potentially regain 1.39. More data from the U.K. is scheduled for this week – unemployment data on Wednesday and fourth-quarter GDP results on Friday.

BoJ interest rate decision this week

The Bank of Japan is set to make a decision this week – another key economic event for USD/JPY.

BoJ’s monetary meeting is scheduled for Tuesday, but there aren’t any monetary policy changes expected. Last week, the pair hit a four-month low of 110.19 and it’s currently hovering around 110.73.

– Steve Thompson, The WorldFirst Team