Washington Outlook: Shutdown Averted as Market Focus Shifts to Fed Independence

The US Dollar Index (DXY) found support on Friday after the US Senate successfully passed a bundle of three spending bills. This legislative move clears a major short-term fiscal risk, allowing currency markets to refocus on monetary policy and institutional stability.

Fiscal Cliff Avoided

The Senate voted 82-15 to approve funds for the Justice, Commerce, and Energy departments. While this resolves immediate liquidity concerns, funding for the Department of Homeland Security remains contentious due to immigration policy disputes.

Markets have interpreted the passage as a signal that the US government will remain functional, maintaining the safe-haven bid for Gold and the USD in the interim.

The Battle for the Fed

Beyond the budget, institutional integrity is in focus. Following reports of friction between the White House and the Federal Reserve, JPMorgan CEO Jamie Dimon defended central bank autonomy, warning that interference could lead to higher inflation and interest rates.

Chicago Fed President Austan Goolsbee noted that while the labor market is stabilizing with payroll gains of 50k and unemployment at 4.4%, fighting inflation requires freedom from political coercion.

Market Implications

• USD: The removal of the shutdown threat is net-positive, but the currency is largely being driven by strong data (Retail Sales, Jobless Claims).
• Gold (XAU/USD): The resolution slightly dampens safe-haven appeal, potentially capping the rally near $4,630/oz in the short term, though long-term central bank buying remains a structural floor.