Financial markets are back in risk-on mode as US lawmakers return to Washington for a vote that could end a 43-day shutdown that paused federal government paycheques, delayed vital food aid for millions of Americans, and disrupted global airline travel. House Republicans are expected to support Monday’s spending package in today’s session, clearing the way for a reopening of the government by Friday. The dollar is grinding higher against a basket of its most-traded counterparts, risk-sensitive currencies like the Canadian and Australian dollars are on the march against the safe-haven Japanese yen, benchmark two- and ten-year Treasury yields are slipping as markets reopen after yesterday’s holiday, and equity markets are setting up for a third day of gains.

USD: Although New York Fed President John Williams is scheduled to speak this morning—and traders will listen closely for any hint of a shift in policymakers’ thinking ahead of the December meeting—investor attention is now turning to the clearer economic picture that could emerge once the government shutdown ends. While economists expect the Bureau of Labor Statistics to release the delayed September non-farm payrolls within days of reopening, the next set of gross domestic product and employment data will likely slip into early December, and updated inflation figures—almost certainly incomplete—will arrive only after the Fed’s December 10 decision. As of this morning, markets are assigning a near-65 percent probability to a rate cut that might reduce the dollar’s yield premium over other currencies, but this could change as hard data begins to arrive.

GBP: The British pound is back on the defensive as rumours swirl around a possible leadership challenge against Prime Minister Keir Starmer, and after unemployment rose to the highest level in a decade outside the pandemic—reinforcing market expectations for a rate cut at the next Bank of England meeting. The exchange rate tumbled on unsubstantiated reports this morning suggesting that health secretary Wes Streeting might be involved in a plot to oust Starmer, but is now recovering after a round of denials from party leaders. Data released yesterday showed private sector pay growth slipping to 4.2 percent and unemployment climbing to 5 percent in the three months to September. Total payrolls fell 32,000 for a second month, and the number of private sector jobs lost over the last year climbed to 201,000. Policymakers voted by a 5-4 margin to leave rates unchanged last week, and markets see this changing next month, with overnight index swaps showing 84 percent odds on a December cut, up from 55 percent earlier in the week.

Bottom line: After several days of front-running from market participants, today’s shutdown relief rally could stall out. But for now, currency markets look likely to maintain their risk-positive posture, with volatility suppressed as four supportive forces align: investors’ continued enthusiasm for US technology stocks, signs of a gentle cooling in the American economy, a gradually easing Federal Reserve, and the possibility that the Supreme Court could impose limits on Donald Trump’s protectionist agenda. As Citigroup CEO Chuck Prince put it in 2007, “When the music stops, in terms of liquidity, things will be complicated. But as long as the music is playing, you’ve got to get up and dance”.