The US shutdown is over, but that isn’t much of a development for the FX market per se. The White House said October payrolls and CPI data are unlikely to be released, meaning volatility will take time to pick up. Average G10 1-month implied volatility is now trading with the widest positive spread (1.1 vol) above 1-month realised volatility since early April. That is mostly driven by very low realised (1m implieds remain below mid-October levels), but it is equally a signal that markets are starting to price in some data-driven shake-up in FX in the coming weeks.

At the same time, open interest on bullish Treasury options has increased significantly in the last few days, suggesting the prevailing call is soft US data prompting dovish Fed repricing. That is also our view, and with a December cut only 15bp priced in, we think the room for front-end rates spillover into the dollar is significant.

Japanese officials probably hope we are right, as USD/JPY continues to creep higher in the low-volatility, risk-on environment. The pair briefly breached 155.0 yesterday, as Japan’s Ministry of Finance continues to send warning signs. We definitely are entering FX intervention territory, but even if intervening is the plan, there is an argument for the MoF to wait until US data releases resume.

Remember, in July of last year, the MoF surprisingly intervened after a sharp slowdown in US inflation, seemingly shifting strategy: intervening in a USD/JPY market-induced selloff, rather than in a rally. If our intuition is right, and the MoF sticks to mere verbal intervention for now, markets may keep testing the upside tolerance band at 156-157 in the next couple of weeks.

Elsewhere in G10, Australian jobs data for October came in strong overnight. The unemployment rate dropped back to 4.3%, suggesting the 4.5% September jump was a blip. The economy added jobs at the fastest pace (42k) since April, entirely driven by full-time hiring. AUD is rallying as the prospect of more RBA easing continues to be delayed: we expect only one more cut in 2026. The Aussie dollar remains our favourite G10 currency into the new year, and we target a move to 0.68 by mid-2026.

Francesco Pesole