The US Bureau of Labor Statistics has paused the release of the Nonfarm Payrolls data owing to a federal government shutdown. This follows an increase in the US ISM Manufacturing PMI to 52.6 in January, exceeding predictions of 48.5, and an improved Employment Index at 48.1.
Currency Market Update
Kevin Warsh was nominated to succeed Jerome Powell as Fed Chair. In currency markets, the US Dollar Index (DXY) is at 97.60, with USD/CHF showing the strongest daily change.
The USD/CAD pair is near 1.3680, as Canadian Manufacturing PMI moved to 50.4, indicating growth. AUD/USD trades close to 0.6950. EUR/USD is around 1.1790, while USD/JPY is near 155.70 ahead of the Japanese election.
Gold is priced near $4,700 after a record $5,598 last week, typically seen as a stable asset during uncertainty. Central banks, notably from China, India, and Turkey, have increased gold reserves by 1,136 tonnes in 2022. Gold prices are influenced by geopolitical issues, interest rates, and the US Dollar, known for its inverse correlation with the metal.
With the Nonfarm Payrolls report suspended due to the US government shutdown, we are now flying blind on the most critical piece of economic data. This creates significant uncertainty, meaning we should expect a spike in market volatility in the coming weeks. We last saw this happen in October of 2013 when a similar shutdown delayed the jobs report, leading to erratic price swings once the data was finally released.
Market Strategy Considerations
The strong ISM Manufacturing PMI reading of 52.6 is now the market’s main focus, and it points to a strengthening US economy. This, combined with the nomination of a hawkish Kevin Warsh to lead the Fed, gives us a clear signal to favor the US dollar. We should consider buying call options on the Dollar Index (DXY) or put options on pairs like EUR/USD to profit from this trend while limiting our downside risk.
Gold has pulled back sharply from its record highs above $5,500, weighed down by the stronger dollar. However, the political uncertainty from the shutdown provides a floor for prices, as central bank demand remained historically strong through 2025, with net purchases exceeding 1,000 tonnes for a second straight year. This choppy environment is ideal for selling covered calls against existing long positions to generate income.
We should also watch for event-driven volatility in other currencies. With a 25 basis point rate hike from the Reserve Bank of Australia almost fully priced in, we could see a “sell the news” reaction in the AUD/USD. In Japan, the upcoming general election introduces political risk, making long volatility strategies like a straddle on USD/JPY an interesting play.
