US Democrats gain ground as shutdown drags on
Democratic candidates secured notable victories across New York City, New Jersey, Virginia, and California in yesterday’s elections. In New York, Zohran Mamdani won the mayoral race with approximately 50% of the vote, while Independent Andrew Cuomo received around 42%. Gubernatorial races in New Jersey and Virginia were decisively won by Democratic candidates, and California’s Proposition 50—aimed at redrawing congressional districts—was projected to pass.
While these results do not directly impact the current administration, they may be interpreted as a broader rejection of its policies in key states. Meanwhile, the US government shutdown has now become the longest in history, surpassing the 2018–19 record. A 14th Senate vote failed to resolve the impasse, though reports suggest negotiations are ongoing.
Today’s ADP employment change and ISM services index releases may lend support to the US dollar. However, recent equity market sentiment has turned negative, and the pace of the USD rally may be ahead of fundamentals.
Sterling under pressure despite positive gilt market response
Chancellor Rachel Reeves’ speech yesterday was met with a favourable response in UK gilt markets, prompting a broad-based decline in yields. However, sterling continued to weaken, reaching multi-month lows shortly after the speech. The Chancellor’s remarks appear to have set expectations for the upcoming budget, with tax increases and spending reductions in non-priority departments likely to feature.
Today’s final October services PMI is not expected to offer meaningful support to the pound. Nonetheless, recent declines against the USD and EUR appear increasingly misaligned with underlying fundamentals. A rebound may be possible following tomorrow’s Bank of England meeting and quarterly report—particularly if the Bank maintains its stance on inflation control before considering further policy loosening.
Euro finds support from industrial strength and ECB commitment
ECB President Christine Lagarde reaffirmed the Bank’s commitment to inflation stability during an event marking Bulgaria’s forthcoming accession to the Euro Area (EA). Bulgaria is set to adopt the euro in early 2026, despite inflation running at more than twice the EA average. The ECB’s stance may lead to a moderation in Bulgarian activity and inflation over the medium term.
Elsewhere in the Euro Area, economic data surprised to the upside. German factory orders rose more than expected in September, and August’s decline was revised to show a smaller contraction. French industrial production also exceeded forecasts, with upward revisions to services PMIs adding further support. These developments provide a firmer foundation for the euro, and a recovery against the US dollar is increasingly plausible.
Neil Parker
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