*Adapted and expanded from the original Reuters report by Rae Wee.*
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## Markets Rally as US Lawmakers Show Progress on Possible Government Shutdown Deal
Global financial markets reacted positively as negotiators in the United States Congress indicated progress toward preventing a potential government shutdown. As concerns about a repeat of previous fiscal stalemates eased, risk assets including stocks and currencies rallied, signaling renewed investor confidence. This article explores the latest developments in Washington, their impact on various forex pairs and other financial assets, and the broader economic implications for global markets.
### Political Developments: Signs of a Deal
– U.S. lawmakers from both parties intensified talks to agree on a short-term funding measure that would keep federal agencies operational beyond the looming deadline.
– The prospect of a shutdown had been unsettling markets, with previous standoffs occasionally lasting weeks or even months. However, by early Tuesday in Asia, news emerged that House and Senate leaders were nearing consensus on a bill to extend funding.
– Key Republicans and Democrats in both chambers signaled willingness to compromise, possibly setting up a vote before the government’s funding is set to expire at midnight on Friday.
**Background Context:**
– A U.S. government shutdown can occur when Congress fails to pass legislation to finance federal government operations and agencies.
– Such impasses have historically resulted in the furlough of federal employees and the temporary halting of non-essential services, carrying economic, political, and market risks.
– The most recent major shutdown occurred from December 2018 to January 2019, lasting a record 35 days and causing widespread uncertainty across global markets.
### Global Market Reaction
#### Equities Respond Positively
– Major Asian stock indexes, including Japan’s Nikkei and Hong Kong’s Hang Seng, opened stronger following indications of progress in Washington.
– Futures tied to U.S. equities also climbed, reflecting optimism that a shutdown would be averted.
– European stocks were expected to open higher as well, continuing the risk-on sentiment.
#### Currency Markets: US Dollar Softens
– The U.S. dollar eased against a basket of major currencies as risk appetite grew, with investors favoring riskier assets over traditional safe havens.
– The euro firmed to 1.0870 against the dollar, recovering from recent lows following the Federal Reserve’s hawkish rhetoric.
– The British pound advanced slightly, trading above $1.2650, as political stability in the U.S. supported a move into riskier currencies.
#### Safe-Haven Assets Retreat
– The Japanese yen weakened modestly, reflecting a shift away from safe-haven positions.
– Gold prices dipped as investors reduced positions in traditional hedges.
– U.S. Treasury yields edged higher as prices fell, another sign of dissipating risk aversion.
### Key Drivers for Forex Markets
**1. Political Risk Premium:**
– With shutdown risks abating, traders unwound defensive trades made in anticipation of a potential crisis.
**2. Fed Policy Uncertainty:**
Read more on AUD/USD trading.