Dollar set for best week in a year as yen struggles

Market Overview - Markets are facing political turmoil in Japan and France, alongside a U.S. government shutdown, leading to decreased investor confidence and a flight to safety in assets like gold [1][10] - The Japanese yen has experienced significant volatility, recently falling to an eight-month low of 153 per dollar, with a decline of over 3% for the week, marking its worst performance since September 2024 [10][11] Currency Movements - The dollar has strengthened, rising more than 1% for the week, supported by the weakness of the yen and euro [6][11] - The euro has seen a slight recovery, trading 0.09% higher at $1.1639, but remains nearly 0.9% down for the week [6][11] - Other currencies, such as the British pound and Australian dollar, have also shown minor gains, with the pound at $1.3413 and the Australian dollar at $0.6594 [6][11] Japanese Political Context - The selection of Sanae Takaichi as head of Japan's Liberal Democratic Party may lead to increased spending and a continuation of loose monetary policy, potentially further weakening the yen [10][11] - The upcoming October Bank of Japan (BOJ) meeting is anticipated to be a catalyst for further yen weakness if Takaichi maintains dovish fiscal and monetary views [4][10] U.S. Federal Reserve Outlook - Recent Federal Reserve meeting minutes indicate caution regarding future interest rate cuts, with markets still pricing in two more cuts by year-end [8][11] - A prolonged U.S. government shutdown could delay important economic data, complicating the Fed's decision-making process for its October meeting [8][11] - Investors are currently pricing in approximately 44 basis points of easing by December 2023 [9][11]