Insights 
VT 
The US Dollar is experiencing gains against G10 currencies, buoyed by political uncertainty in the US and France. Despite an offer from President Trump to negotiate after reopening the government, the shutdown continues with limited progress.
In France, President Macron has instructed outgoing PM Lecornu to pursue coalition talks, a challenging task since the effective governance of the National Assembly has been hindered since last year’s snap election. Overnight, the NZD and AUD weakened due to poor consumer sentiment figures, while EUR and CHF are trading cautiously.
Swiss FX Reserves Increase
Switzerland’s FX reserves increased by CHF10 billion in September. The JPY and GBP have experienced modest losses against the USD, whereas CAD and MXN show marginal declines but outperform on the crosses. Mild risk appetite prevails as US equity futures approach record highs.
US Treasury yields are recovering and threatening local highs. Oil prices face challenges extending recovery, while copper consolidates. Gold is well supported, nearing $4000/oz. Delays in US trade data are expected due to the shutdown, with the NY Fed’s inflation expectations figures remaining. Fedspeak includes Bostic, Bowman, Miran, and Kashkari, in anticipation of a possible rate cut at the next FOMC meeting.
Given the broad strength in the US Dollar, we see continued value in holding long USD positions against currencies with domestic headwinds. The ongoing US government shutdown, now in its second week, is creating uncertainty similar to the 16-day shutdown back in 2013 which temporarily slowed economic growth. Derivative traders should consider buying at-the-money call options on the U.S. Dollar Index (DXY) to capture further upside potential.
The strange divergence between strong US equity futures and risk-off sentiment in the currency markets presents an opportunity. While stock markets are near record highs, the VIX has quietly risen from 14 to 19 over the past month, signaling growing nervousness beneath the surface. We believe buying cheap, out-of-the-money put options on the S&P 500 is a prudent hedge against a sharp reversal driven by political gridlock.
US Treasury Yields and Fed Policy
Rising US Treasury yields are directly challenging the market’s pricing of a Federal Reserve rate cut on October 29. With the latest September CPI data showing core inflation remaining sticky at 3.1%, the Fed may disappoint those expecting dovish policy. Traders could use options on Fed Funds futures to position for a hawkish surprise, where the Fed holds rates steady instead of cutting.
In Europe, political instability in France continues to weigh on the Euro, with the spread between French and German 10-year bond yields widening to 85 basis points. This political risk premium makes shorting the Euro an attractive trade. We favor buying EUR/USD put options with expiries in late November to capitalize on this sustained weakness.
Gold’s approach to the critical $4,000 per ounce level signals strong safe-haven demand that is ignoring the strong dollar. The metal’s rally from below $3,000 earlier in 2025 has been fueled by central bank purchases and geopolitical tension. A decisive break of this psychological barrier could trigger a rapid move higher, making long call options on gold futures or ETFs a compelling momentum trade.
The Australian and New Zealand dollars are particularly vulnerable, suffering from both weak domestic consumer confidence figures and the powerful USD trend. These currencies are likely to underperform as global risk sentiment sours. We would look to short AUD/USD futures, as Australia’s link to a consolidating copper price offers little support.
