Market reaction to U.S. President Donald Trump's tariffs U-turn on more than 200 food products was muted, with some analysts saying the move was not a surprise due to cost-of- living issues. Elsewhere, sterling remained under pressure following a whirlwind Friday session as speculation swirled around the UK government's highly anticipated November 26 budget. The safe-haven Swiss franc hovered around a one-month high and last stood at 0.7941 per dollar, finding support from jitters over an ugly selloff in s ...

Market Sentiment - Risk-off sentiment has been pervasive across markets, leading to a stronger USD against most currencies, with the exception of JPY [1][9] - The Australian dollar and New Zealand dollar have been particularly weak, with the latter reaching a nearly seven-month low following a rise in the unemployment rate [9][10] Currency Performance - The U.S. dollar index was steady at 100.18, having reached as high as 100.25 for the first time since August 1 [5][10] - Sterling is near a seven-month low after UK finance minister Rachel Reeves hinted at broad tax rises in her upcoming budget [1][2] - The New Zealand dollar fell to $0.5635 after a 1.2% drop on Tuesday, marking a seven-month low [7][10] Stock Market Trends - Selling pressure dominated Asian stock markets, with Japan's Nikkei dropping 2.4% and South Korea's KOSPI plunging 4.8% [4][9] Economic Indicators - The ongoing government shutdown in the U.S. has halted the flow of macroeconomic data, increasing focus on private ADP payrolls [6][10] - The Reserve Bank of Australia's recent policy statement was not perceived as hawkish, contributing to the weakness of the Australian dollar [8][10] Cryptocurrency Market - Bitcoin experienced a 6.1% decline on Tuesday, reaching its lowest level since June 22, trading around $100,317 [8][10]

Group 1: Currency Movements - The U.S. dollar experienced mixed performance, ending a six-day rally against the yen and a three-day losing streak versus the euro as investors prepared for significant central bank meetings and trade negotiations [1] - The Chinese yuan reached a one-month high against the dollar at 7.1103, with the People's Bank of China setting the official midpoint rate at 7.0881 per dollar, the strongest since October 15, 2024 [2] - The yen continued to decline against the dollar for the seventh consecutive session, influenced by new Prime Minister Sanae Takaichi's perceived dovish stance and rising oil prices [3] Group 2: Central Bank Meetings - Analysts anticipate that the Japanese fiscal premium will remain high, limiting the potential for yen appreciation, while the market's focus is on the upcoming Bank of Japan (BoJ) meeting [4] - The BoJ is expected to discuss the possibility of resuming rate hikes as concerns about a tariff-induced recession diminish, although political factors may delay any decision [5] - The Federal Reserve is widely expected to implement a 25-basis-point rate cut, with market attention on potential signals regarding the winding down of its quantitative tightening program [6]

Core Viewpoint - The election of hardline conservative Sanae Takaichi as Japan's prime minister has led to a decline in the yen, with traders speculating on potential changes in interest rate outlook and increased fiscal spending [1][2]. Currency Market Impact - The yen fell 0.76% to 151.895 per dollar, marking its lowest level since October 14, and experienced its largest single-day decline in two weeks [2]. - The yen also faced challenges against the euro and sterling, indicating broader currency market pressures [2]. Government Appointments and Economic Policy - Takaichi plans to appoint Satsuki Katayama as finance minister, who has previously expressed a preference for a stronger yen, potentially influencing market perceptions regarding yen depreciation [3]. - Analysts suggest that inflation and household purchasing power will be critical issues for the new government, which may lead to a reluctance to support further yen depreciation [4]. Monetary Policy Considerations - The Bank of Japan (BOJ) faces challenges in navigating monetary policy, as Takaichi's support for fiscal stimulus complicates the path for potential interest rate increases [4][5]. - There are indications that monetary tightening may be delayed until fiscal easing takes effect, creating a complex environment for the BOJ [5]. Broader Market Context - The dollar index rose to a six-day high, supported by the weaker yen, amidst a generally positive market sentiment following optimistic trade deal discussions between the U.S. and China [6][7]. - Concerns regarding U.S. dollar funding and its implications for euro zone banks were highlighted, reflecting the interconnectedness of global financial markets [7].

Economic Outlook - Federal Reserve Chair Jerome Powell indicated a potential interest rate cut at the upcoming policy meeting on October 28-29, citing a stagnant labor market and the impact of the government shutdown on economic data assessment [6][8] - Markets are currently anticipating a quarter-point rate cut this month, another in December, and three additional cuts next year, according to LSEG data [6][8] Currency Movements - The U.S. dollar index was flat at 99.055 after a 0.2% decline in the previous session, with the dollar losing ground against the safe-haven yen and Swiss franc [2][8] - The greenback was steady at 151.80 yen, following a 0.3% slide, and little changed at 0.8013 franc after a similar drop [2][8] - The euro held firm at $1.1606 after gaining 0.3% in the previous session [3][8] U.S.-China Trade Tensions - Escalating tensions between the U.S. and China were highlighted, with both countries imposing fees on shipping firms, affecting various goods [7][8] - Joseph Capurso from Commonwealth Bank of Australia noted that the U.S.-China tensions could escalate further, which may negatively impact the risk-sensitive Australian dollar [7][8] - The Australian dollar edged up 0.1% to $0.6491 after a previous decline, while the New Zealand dollar eased 0.1% to $0.5706, extending its decline from Tuesday [7][8]

Group 1 - The Australian dollar fell by 1% to 0.6465, marking its lowest level in nearly two months, while the New Zealand dollar decreased by 0.6% to $0.5693, reflecting a negative sentiment in risk assets due to U.S.-China trade tensions [4] - The U.S. and China are set to impose additional port fees on ocean shipping firms, impacting a wide range of goods, which indicates escalating trade tensions [3] - The chief economist at Lombard Odier highlighted that the ongoing trade war between the U.S. and China is a significant global concern, suggesting that uncertainty and tariffs will persist in the long term [5] Group 2 - Safe-haven currencies like the Swiss franc and Japanese yen strengthened, with the dollar down 0.3% against the yen and 0.1% against the franc, indicating a flight to safety amid geopolitical tensions [6] - Political uncertainty in Japan, particularly regarding the potential candidacy of Sanae Takaichi for prime minister, has limited the yen's gains, as her party's coalition partner withdrew support [6] - The euro experienced mixed trading, with Asian traders pushing it higher, while European traders saw it decline by 0.15% to $1.1552, reflecting uncertainty in the broader currency market [7]

Core Viewpoint - The Japanese yen is experiencing significant depreciation as market expectations for a rate hike by the Bank of Japan diminish, with the USDJPY exchange rate reaching 153 yen per dollar, the lowest since February 14 [1]. Group 1: Currency Impact - The selection of Sanae Takaichi in the Liberal Democratic Party leadership contest has contributed to the yen's decline, as she advocates for lower interest rates, which are generally detrimental to domestic currencies [1]. - The yen's drop past the 150 level against the dollar is perceived as an initial phase of a more extensive decline, with comparisons drawn to former Prime Minister Abe's policies that favored monetary and fiscal stimulus over structural reforms [2].

Core Insights - The U.S. dollar remains stable ahead of a potential government shutdown, which could impact the release of key economic data, particularly the monthly jobs report [1][2] - The Australian dollar is performing well due to the central bank's cautious stance on inflation [1] Economic Impact - The U.S. government funding is set to expire, and without a temporary spending deal, economic data releases, including employment statistics, will be halted [2] - The payrolls report, crucial for Federal Reserve policymakers, is scheduled for release on Friday, and any delay could lead to increased market volatility [3] Market Reactions - Traders are anticipating at least one more U.S. rate cut this year, with a strong likelihood of a second cut by year-end [4] - The dollar index has decreased nearly 10% this year and was down 0.1% at 97.82 [4] Currency Performance - The Japanese yen has strengthened against the dollar, which was down 0.4% at 148.02 yen [5] - There is a 60% chance of a rate hike by the Bank of Japan in December, influencing investor sentiment [5] Strategic Outlook - Selling the dollar against the yen may become a popular strategy if the U.S. government shutdown occurs, as the dollar has been under pressure from political uncertainty [6][7] - The dollar has faced challenges from the risk of a government shutdown and declining oil prices, while the yen has emerged as a strong performer [7]

Economic Resilience and Dollar Performance - The dollar experienced a decline of 0.21% to 149.48 against the Japanese yen, yet it is on track for a fifth consecutive week of gains, trading near its highest level since August 1 [1] - U.S. consumer spending rose by 0.6% in August, surpassing the 0.5% estimate by economists, indicating strong economic activity [2] - The Personal Consumption Expenditures Price Index increased by 0.3% last month, aligning with expectations, which suggests stable inflation [3] Federal Reserve's Interest Rate Outlook - Stronger economic data has diminished expectations for Federal Reserve rate cuts, affecting the interest rate differential with other countries and contributing to the dollar's strength [3][4] - Richmond Fed President Thomas Barkin noted limited risks of significant rises in unemployment or inflation, allowing the Fed to balance its goals while considering further interest rate cuts [6] - Fed Vice-chair for Supervision Michelle Bowman stated that the central bank is close to achieving its 2% inflation target and emphasized the need for decisive interest rate cuts to address potential job market issues [6][7] Market Reactions and Trends - The dollar index fell by 0.33% to 98.17 but remains on track for a second consecutive week of gains [5] - The yield on the two-year note decreased by 1.8 basis points to 3.645%, reflecting changes in interest rate expectations [5]

Group 1: U.S. Dollar Performance - The U.S. dollar remained stable against major currencies, with a slight decline of 0.11% against the Swiss franc and a decrease of 0.08% against the Japanese yen [1][6] - The dollar index, which measures the dollar against a basket of currencies, was little changed at 97.25 [4] Group 2: Federal Reserve Commentary - Federal Reserve Chair Jerome Powell emphasized the need to balance high inflation risks with a weakening job market in future interest rate decisions [2] - Fed Vice Chair Michelle Bowman indicated that the Fed may need to accelerate rate cuts if demand weakens and layoffs occur [3] Group 3: Market Reactions and Expectations - Money markets are pricing in a nearly 90% chance of a rate cut in October, slightly down from 92% the previous day [5] - The Swedish krona appreciated by 0.19% against the dollar following a hawkish 25-basis-point rate cut by the Riksbank, which analysts noted was somewhat surprising given the meeting guidance [6]