The threat of a federal government shutdown took a back seat after the US Congress approved a temporary funding bill to keep federal agencies open until November 17, 2023.

The market environment of recent days has been rather negative, especially the risk of a federal government shutdown along with all the inherent problems. While it had long turned into a farce, investors could not ignore it, following the decades-old tradition of selling in anticipation of negative news and then buying cheaper assets. It seems that this time will be no different.

Today, Treasury yields have resumed gains after a slight corrective decline at the end of the week. The market's focus is once again on potential interest rate hikes by the Federal Reserve and other central banks worldwide. As you know, the US regulator's monetary policy decisions have a severe impact on market sentiment.

Today, market participants are awaiting comments from Fed Chairman Jerome Powell, hoping to receive some clues about the prospects of interest rate increases. Notably, Friday's inflation data showed a decline, while the Personal Consumption Expenditure (PCE) Price Index notched a greater-than-expected monthly growth decline and a decrease on a year-over-year basis in line with consensus estimates. Thus, all eyes will be on Powell's reaction to this news. However, whether he will comment on inflation and possible rate hikes is unclear.

Judging by the dynamics of futures on major US stock indices and the positive start of trading in Europe, the week is likely to begin with a recovery in demand for risk assets. The overall positive sentiment as well as the possible absence of any remarks about interest rates in Powell's speech may lead to a reversal in Treasury yields and a weaker dollar.

Given that the issue of a government shutdown has taken a back seat, the market will kick off the new month on a positive note. Another important factor is the start of the fourth quarter, which could be positive for stock demand. If US consumer inflation data released shows a slowdown or even a slight decrease this month, demand for risk assets as well as government bonds, not only in the United States, may increase. In this case, the dollar will remain under pressure.

As for today's trading, the greenback is likely to resume losses. The most significant movements are expected with the start of trading in the United States.

Daily Forecast:

USD/JPY

After reaching a local peak at 149.83, the pair's upside momentum seems to have fizzled out. Improved market sentiment and increased demand for risk assets could put pressure on the pair, dragging it down to 149.60 and even 148.70.

USD/CAD

Likewise, this pair's upside momentum is fizzling out. A resumed rally in crude oil prices and a possible decline in the US dollar could bring the quote below 1.3565. Then the pair is expected to extend losses, heading toward the 1.3490 mark.