The U.S. dollar stabilized on Thursday as investors weighed the impact of political uncertainty in Europe and Japan against the backdrop of an ongoing U.S. federal government shutdown.
In Europe, attention shifted away from discussions over proposed EU steel import tariffs and back to the deepening political crisis in France. French President Emmanuel Macron’s office confirmed on Wednesday that he will appoint a new prime minister within 48 hours following the resignation of Premier Sebastien Lecornu earlier this week. Lecornu’s abrupt departure — coming just hours after announcing his cabinet — has thrown the country into renewed political turmoil.
Although the upheaval has prompted speculation about the possibility of a snap parliamentary election, Macron’s office has made clear that most lawmakers oppose such a move.
“It’s a domestic political and, probably soon, an economic crisis. Direct contagion to other eurozone countries looks unlikely. Indirect contagion, however, is possible,” analysts at ING said.
The euro came under pressure amid the uncertainty, slipping 0.1% to $1.1622. The currency has lost around 0.8% over the past week and on Wednesday touched its lowest level since late August.
In Japan, markets continued to react to Sanae Takaichi’s victory in the leadership race for the ruling Liberal Democratic Party. Investors are increasingly expecting that she will support greater fiscal spending and looser monetary policy. This, combined with weaker expectations for further rate hikes by the Bank of Japan, has weighed on the yen.
“The recalibration of market expectations around a slower pace of Bank of Japan rate hikes continues to exert downward pressure on the yen, with spillover effects weighing on regional currencies,” MUFG analysts said in a note.
The yen was last trading at 152.67 per dollar, hovering near levels last seen in February. It has weakened more than 3.6% against the greenback so far this week.
Supported by softness in both the euro and yen, the U.S. dollar index was steady at 98.94 by 05:28 ET (09:28 GMT), after hitting a two-year high earlier in the session.
Investors were also watching the now week-long U.S. government shutdown, which has delayed the release of key economic data likely to influence the Federal Reserve’s policy path through the rest of 2025.
Minutes from the Federal Open Market Committee’s September meeting revealed that officials were split on the appropriate pace of rate adjustments, with debate centering on how to balance slowing labor market momentum against persistent inflation. While lower interest rates can boost hiring and investment, they also risk reigniting inflationary pressures.
Most policymakers “judged that it likely would be appropriate to ease policy further over the remainder” of this year, though the timing and scale of any cuts remain uncertain, the minutes said.
In a note, analysts at Capital Economics said the minutes showed that most FOMC participants favored lowering rates to a more “neutral setting,” a level that neither supports nor restricts economic growth, due to persistent “downside risks” to employment.
“Nonetheless, with ‘a majority of participants’ still emphasising the ‘upside risks to their outlooks for inflation,’ we remain comfortable with our view that the FOMC will proceed at a slower pace than market pricing suggests,” the analysts said.
Market expectations for a 25-basis-point rate cut at the Fed’s upcoming meeting later this month remained unchanged after the release of the minutes.
This content is for informational purposes only and does not constitute financial, investment, or other professional advice. It should not be considered a recommendation to buy or sell any securities or financial instruments. All investments involve risk, including the potential loss of principal. Past performance is not indicative of future results. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
Leave a Reply