Global FX Market Summary: Monetary Policy and Rate Expectations, Geopolitical and Political Instability, US Government Shutdown 8 October 2025

Markets expect two Fed cuts this year; gold tops $4,000. US shutdown, French turmoil, and Ukraine tensions pressure global currencies.

Monetary Policy and Rate Expectations

The market is pricing in the possibility of two more interest rate cuts by the US Federal Reserve this year, specifically in October and December. This expectation is supported by the CME FedWatch tool, which indicates a 95% probability of a 25-basis-point cut in October and 84% in December. This dovish outlook acts as a headwind for the USD and is a key factor behind the recent record-setting run in Gold, which has surged past $4,000 per ounce. In contrast, the Bank of Japan (BoJ) is maintaining an ultra-simple policy, keeping the Japanese Yen (JPY) under downward pressure, with the swaps market pricing in less than 30% odds of a rate hike in October. Similarly, the Bank of England (BoE) is expected to keep interest rates on hold at 4% for the rest of the year.

Geopolitical and Political Instability

A major source of risk is the US government shutdown, which has remained “shuttered for the sixth day on Monday” and entered its “eighth day” at one point, with the Senate unable to reach a consensus on a spending bill. US President Donald Trump has even threatened to lay off federal workers if the shutdown persists. In Europe, political uncertainty is rife following the resignation of France’s Prime Minister Sebastien Lecornu, which “dents sentiment surrounding the shared currency (EUR)” and means France is likely to miss a deadline to present its 2026 budget bill. Geopolitical tensions are also noted, with Ukraine reporting that its drones struck a major ammunition plant, an oil terminal, and a weapons depot deep inside Russian territory, while the IAEA reported multiple shelling rounds near Ukraine’s Zaporizhzhia nuclear power plant. Separately, diplomacy in the Middle East saw indirect talks between Israel and Hamas end positively over Trump’s 20-point Gaza peace plan.

Market Reactions to US Government Dysfunction

The closure has caused significant US macro releases, including the closely-watched Nonfarm Payrolls (NFP) report, to be delayed, leaving markets subdued. In this data void, the USD is at the mercy of speeches from influential FOMC members, with investors keenly awaiting the FOMC Minutes on Wednesday and Fed Chair Jerome Powell’s appearance on Thursday for fresh guidance. While the shutdown is not dollar-positive, its relative stability compared to the political woes in France and Japan has provided the USD with a comparative lift. However, a prolonged shutdown is still cited as a risk that could ultimately undermine the Greenback (USD) by potentially disrupting economic activity and introducing labor market risks through the threat of permanent federal worker layoffs.

Top upcoming economic events:

October 8, 2025 (Wednesday)

1. 16:00 – ECB President Lagarde Speech (HIGH | EUR)

Lagarde’s remarks often shape expectations for future ECB rate moves. With markets debating the pace of future cuts, any hint of policy direction could move the euro sharply.

1. 18:00 – FOMC Minutes (HIGH | USD)

The minutes reveal internal Fed debate over rate cuts and inflation trends. Traders will scrutinize tone for signs of how dovish the committee truly is ahead of year-end.

1. 15:00 – BoE’s Pill Speech (MEDIUM | GBP)

Pill’s comments can shift expectations for UK monetary policy. Inflation remains sticky, and traders will watch for clues about whether the BoE will delay rate cuts.

October 9, 2025 (Thursday)

1. 12:30 – Fed Chair Powell Speech (HIGH | USD)

The week’s most market-moving event. Powell’s tone will guide expectations for upcoming rate cuts and could impact the dollar, gold, and equities globally.

1. 11:30 – ECB Monetary Policy Meeting Accounts (MEDIUM | EUR)

This detailed summary of the last ECB meeting assists traders understand how divided policymakers are on further easing. It’s key for gauging eurozone monetary outlook.

1. 12:30 – Initial Jobless Claims (MEDIUM | USD)

A vital real-time indicator of U.S. labor market health. If claims rise notably, it strengthens the case for more Fed rate cuts.

1. 22:00 – RBA Governor Bullock Speech (MEDIUM | AUD)

Australia’s central bank is balancing sluggishing growth with persistent inflation. Bullock’s remarks could move the AUD if they hint at timing for the next rate adjustment.

October 10, 2025 (Friday)

1. 10:00 – China New Loans (LOW but significant | CNY)

A key gauge of Chinese credit conditions. Strong or fragile lending data can influence global risk sentiment, particularly for commodities and Asian markets.

1. 10:00 – China M2 Money Supply (LOW but significant | CNY)

Monetary expansion trends offer clues about Beijing’s stimulus efforts. Markets track this to assess China’s policy support for its sluggishing economy.

1. 08:00 – Eurozone Industrial Output (LOW but significant | EUR)

While labeled low impact, it provides insight into the region’s manufacturing health. fragile data may reinforce recession fears and pressure the ECB to stay dovish.

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