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The broad US dollar (DXY) has paused its recent rally, after encountering technical resistance and amid rising concerns over the economic impact of the government shutdown. There are, however, signs of a potential breakthrough. Several Democratic lawmakers appear open to supporting a short-term funding measure that could end the shutdown. Such a deal may include provisions to protect civil servants from layoffs.

Kevin Hassett, a key economic advisor to President Trump, warned that flight disruptions could hamper economic activity. The Federal Aviation Administration has ordered airlines to cut flights by 10% starting 14 November. These disruptions come at a critical time, with the Thanksgiving holiday approaching on 27 November. Reduced flight capacity could dampen consumer spending and tourism. Reflecting this uncertainty, the University of Michigan’s consumer sentiment index fell to 50.3 in November, down from 53.6 in October and below Bloomberg’s consensus forecast of 53.0.

Meanwhile, Fed Vice Chair Jefferson stated that monetary policy remains data-driven, assuring markets that the Fed still has access to sufficient macro data despite the lack of official releases during the government shutdown. Fed’s Williams added that the upcoming December policy meeting will require careful balancing. Inflation remains high, while the economy shows resilience.

In Japan, Japanese Prime Minister Takaichi has signalled a change in fiscal policy. The government will no longer be reviewing the long-held goal of primary budget surplus on a single-year basis.

Regional FX

The US dollar (DXY) has pulled back a bit, but Asian FX performance has been mixed. KRW and TWD led regional losses last week, falling 2.1% and 0.7% against the US dollar, respectively. Foreign equity outflows were particularly strong from South Korea and Taiwan last week, with US$4.8bn and US$2.4bn of outflows respectively, driven by concerns over lofty AI valuations. KRW and TWD’s movements last week were consistent with foreign equity outflows.

In contrast, the ringgit has strengthened by 0.6% against the US dollar last week, moving below the key 4.18 level against the US dollar and recording about 7% gain year to date. This brings our 2025 year-end forecast of 4.1500 within reach, and the risk is for ringgit to strengthen further towards the 2024 high of around 4.0950 level against the US dollar. We expect the ringgit to appreciate further against the US dollar, supported by resilient domestic demand, prudent fiscal management, and a narrowing policy rate gap with the US. Malaysia’s industrial production rose 5.7%yoy in September, up from 4.8% in August and beating Bloomberg consensus of a 5.4% rise. The recent strength in CNY has also had a positive spillover effect on the ringgit.

Meanwhile, China’s CPI surprised to the upside, rising by 0.2%yoy, and coming in above the Bloomberg consensus of -0.1%. The better-than-expected print likely reflects holiday demand for travel, food, and transport. However, a still weak inflation outlook, coupled with decelerating credit growth, suggest looser macro policy support is likely.