By Amanda Cooper
LONDON (Reuters) -The U.S. dollar held firm on Tuesday ahead of a likely U.S. government shutdown that could disrupt the release of the monthly jobs report this week, while the Australian dollar was the top-performing major currency of the day after the central bank sounded a cautious note on inflation.
Investor focus is on the impending U.S. shutdown. Government funding expires at midnight on Tuesday (0400 GMT) unless Republicans and Democrats agree to a last-minute temporary spending deal.
The U.S. Labor and Commerce departments said their statistics agencies would halt economic data releases in the event of a partial government shutdown, including closely watched employment data for September.
The payrolls report, scheduled for Friday, is crucial for decision-making by policymakers at the Federal Reserve, and a delay could leave the central bank flying blind on the labour market. A delay could generate extra market volatility, as uncertainty among investors increases.
“For markets, this means trading in the near term without one of the most important indicators of U.S. economic health,” said Joshua Mahony, chief market analyst at Scope Markets.
Markets show traders are pricing in at least one more U.S. rate cut this year, most likely in October, with a strong chance of a second by year-end. Data later on Tuesday includes a monthly report on job vacancies for September that is expected to show 7.185 million openings.
MUFG strategist Lee Hardman said the dollar was coming under pressure from growing U.S. political uncertainty. The dollar index, which has already fallen nearly 10% this year, was last down 0.1% on the day at 97.82.
The Japanese yen shook off a bout of overnight weakness to leave the dollar down 0.4% at 148.02 yen. Investors considered the Bank of Japan’s summary of opinions for its September meeting at which the central bank debated the possibility of a near-term rate hike. Markets show traders currently place a 60% chance on a December rise.
Strategists at ING say selling the dollar against yen could prove a popular play should the U.S. government shutdown materialise. The pair has risen 0.7% this month, as the dollar has muscled higher, but has fallen nearly 6% so far in 2025, as investors have bought into the idea that Japanese rates are likely to slowly rise, while those in the United States fall.
“The dollar has suffered from rising risk of a U.S. government shutdown and falling oil prices since the weekend, with the yen emerging as the top performer,” ING’s Francesco Pesole said.
“A lower dollar/yen may well remain the favourite trade during the shutdown. It lost 1.5% during the 2018-19 shutdown, and is currently trading 1% above its short-term fair value, according to our model,” he said.
The Australian dollar, meanwhile, was last up 0.5% at $0.6608, after the Reserve Bank of Australia, which has lowered borrowing costs three times this year, held rates steady as expected. The bank said recent data suggested inflation might be higher than forecast in the third quarter and the economic outlook remained uncertain.
In Europe, sterling shrugged off data that showed Britain’s economic growth slowed to 0.3% between April and June this year, while the current account deficit grew in the three months to the end of June by far more than expected to the equivalent to 3.8% of GDP, up from 2.8% in the first quarter of 2025.
The pound was last flat at $1.3436 and a touch weaker against the euro, which was up 0.1% at 87.38 pence. The euro edged up 0.1% against the dollar to $1.174.
(Additional reporting by Ankur Banerjee in SingaporeEditing by Shri Navaratnam, Lincoln Feast and Susan Fenton)
