The dollar index (DXY00) fell to a 2-week low today and is down by -0.29%.  The dollar is falling today on speculation that the reopening of the US government will allow the release of delayed economic reports that may show a weakening US economy, prompting the Fed to keep cutting interest rates. Losses in the dollar are limited after hawkish comments from the Fed, following Boston Fed President Susan Collins and Cleveland Fed President Beth Hammack, who said they favor keeping interest rates steady.   Al ...

By Kevin Buckland and Amanda Cooper TOKYO/LONDON (Reuters) -The dollar eased on Thursday after U.S. President Donald Trump signed a deal to end the government shutdown, while the yen hit a record low against the euro after Japan's new prime ​minister said she wanted the central bank to go slow on rate hikes. The pound briefly touched a session low, before recovering, after a report ‌showed the UK economy barely grew in the third quarter of the year. The Australian dollar, meanwhile, hit a two-week high ...

Group 1: Dollar Strength and Market Dynamics - The dollar has been a significant theme in the first part of the year, contributing to the narrative of the end of U.S. exceptionalism for 2025 [1][2] - Recent movements indicate the dollar is breaking from its ranges against key currencies, suggesting potential for continued strength into year-end [3] - With approximately 70% of the market pricing in a Federal Reserve rate cut in December, there is potential upside in yields that could support the dollar's movement [4] Group 2: Asset Correlations and Market Volatility - There is a noted breakdown in cross-national correlations, with movements in the dollar not affecting other asset classes like gold or private credit [5] - The market may be entering a more volatile phase, reminiscent of the late 1990s tech bubble, with potential for significant corrections while still seeing overall market growth [7] - Higher dollar and yields indicate tightening financial conditions, which may negatively impact precious metals and cryptocurrencies [8] Group 3: Yen Weakness and Market Outlook - Structural factors contributing to yen depreciation remain strong, including negative real yields and a poor growth outlook [9] - The dollar is expected to strengthen against the yen, with market sentiment leaning towards further yen weakness [10] - Intervention from Japanese officials is not anticipated unless the dollar-yen exchange rate exceeds 158 [10]

Core Viewpoint - The yen has rebounded after verbal intervention from Japanese officials, while US and Japanese leaders have committed to enhancing security ties and defense funding [1][2]. Currency Performance - The yen rose by as much as 0.7% against the dollar, marking its first day of gains in eight, although it remains near its weakest level since February and is the worst performing currency among the Group-of-10 this month, having declined approximately 3% against the dollar [1]. Government Response - Japan's Minister for Growth Strategy, Minoru Kiuchi, stated that authorities will continue to monitor the effects of yen weakness on the economy [2]. - US Treasury Secretary Scott Bessent emphasized the importance of sound monetary policy in mitigating excessive currency fluctuations during discussions with Japan's Finance Minister Satsuki Katayama [3]. Market Sentiment - Derek Halpenny from MUFG Bank Ltd. noted that the US Treasury's statement suggests that the current monetary policy of the Bank of Japan may no longer be justified, indicating a potential decrease in appetite for selling the yen at current USD/JPY levels [4]. - There is an expectation of no change in interest rates from the Bank of Japan in the upcoming meeting, although pressure for a hike is increasing due to high inflation and ongoing yen weakness [4]. Broader Economic Context - Attention is shifting to the Federal Reserve's upcoming meeting, with traders anticipating a quarter-point rate cut. Additionally, Amazon's announcement of cutting approximately 14,000 jobs raises concerns regarding the US labor market's health [5]. - The yen's recent performance is attributed to mild verbal intervention from Japanese authorities, with market focus heightened due to a lack of US data amid a government shutdown [6].

Currency Market Overview - The dollar index rose by +0.34% to a four-session high, supported by weakness in the yen and easing US-China trade tensions [1] - The yen fell to a one-week low against the dollar due to expectations of expansionary fiscal policy under new Japanese Prime Minister Takaichi [1][5] - The euro declined by -0.31% as a result of dollar strength and negative sentiment from a credit rating downgrade of France [3] Economic Indicators - The October Philadelphia Fed non-manufacturing business activity survey dropped -9.9 to a four-month low of -22.2, indicating a slowdown in business activity [2] - Markets are anticipating a 97% chance of a -25 basis point rate cut at the upcoming FOMC meeting on October 28-29 [2] Central Bank Policies - The Federal Reserve is expected to continue cutting interest rates, while the European Central Bank (ECB) is nearing the end of its rate-cutting cycle, leading to central bank divergence [3][4] - Swaps indicate a 2% chance of a -25 basis point rate cut by the ECB at the October 30 policy meeting [4] Japan's Economic Data - Japan's September machine tool orders were revised upward to +11.0% year-on-year, marking the largest increase in six months [6]

Core Insights - The recent market dynamics have been labeled as the "debasement trade," driven by concerns over budget deficits, high inflation, and the declining dominance of the US dollar [2][5]. Group 1: Market Dynamics - Investors are increasingly purchasing hard assets such as gold, silver, and cryptocurrencies, which are perceived as beneficiaries of a weakening dollar and persistent inflation [3]. - The selling side of the debasement trade includes a decline in currencies and government debt, particularly noted in Japan with the yen and sovereign bonds selling off due to political changes [4]. - Central bank stimulus globally is reinforcing the debasement narrative, as low interest rates and money printing raise inflation concerns [5]. Group 2: Inflation and Interest Rates - Rising inflation may lead to rate hikes, which could heighten concerns over sovereign debt, although the sell side of the debasement trade is not as pronounced in the US, where Treasurys have been rallying [6].

Core Viewpoint - The anticipated appointment of Satsuki Katayama as Japan's finance minister may lead markets to reconsider pushing the yen lower, while also aiding the new prime minister in exploring new funding avenues for economic stimulus plans [1][4]. Group 1: Market Reactions - Following the news of Katayama's expected appointment, the dollar briefly dipped to approximately 150.50 yen before recovering to above 151 yen [2]. - The yen is currently trading around 151 per dollar, reflecting market expectations regarding the Bank of Japan's monetary policy [3]. Group 2: Economic Context - Katayama has previously indicated that the yen's real value should be closer to 120-130 per dollar, suggesting a preference for reversing the trend of a weak yen [2][3]. - Rising living costs, partly attributed to higher import prices from a weak yen, have negatively impacted households and the ruling party's approval ratings [7]. Group 3: Political Landscape - Sanae Takaichi's election as Japan's first female prime minister represents a significant milestone in a male-dominated political landscape [4]. - Takaichi is known for advocating expansionary fiscal and monetary policies, which may lead to increased government spending and a delay in rate hikes by the Bank of Japan [4]. Group 4: Katayama's Profile - Katayama, a seasoned politician with a background in the finance ministry, is recognized for her decisive and outspoken approach, contrasting with the current finance minister's low-profile style [5]. - Her familiarity with currency diplomacy and relationships with key figures in the finance ministry may influence exchange-rate policy [5].

Core Viewpoint - The dollar showed mixed performance against major currencies, remaining flat against the euro and yen while declining against the Swiss franc, indicating a cautious approach from investors in a risk-averse environment [1] Currency Performance - The dollar was flat against the euro and yen, suggesting stability in these currency pairs [1] - The dollar experienced a decline against the Swiss franc, highlighting a shift in investor sentiment towards safer assets [1] - Overall, the dollar's slight recovery indicates a temporary avoidance of risk by investors [1]

Currency Market Dynamics - The U.S. dollar is experiencing a third consecutive daily loss against the euro while slightly increasing against the yen, influenced by U.S.-China tensions and dovish comments from Federal Reserve officials [1] - U.S. Treasury yields are near multi-week lows, with the benchmark 10-year yield just above 4%, contributing to pressure on the dollar amid concerns over a prolonged U.S. government shutdown [2][3] - The dollar index, which measures the greenback against six other currencies, decreased by 0.05% to 98.63, indicating a potential weekly decline of around 0.3% [3] Rare Earths and Trade Relations - Investors are closely monitoring China's recent expansion of rare earth export controls, which has drawn criticism from U.S. officials and raised concerns about potential disruptions to global supply chains [4] - The situation is viewed as possibly a bargaining tactic by China to gain concessions from the U.S., according to market analysts [4] Australian Dollar and Economic Indicators - The Australian dollar remained stable at $0.6511 following data that showed unemployment reached a near four-year high in September, reinforcing the case for interest rate cuts [6] - The Australian dollar has been volatile due to trade tensions, while traditional safe-haven assets have gained [6] - China's yuan strengthened to a two-week high against the U.S. dollar after the central bank set its strongest daily midpoint in a year [6]

Core Viewpoint - The recent rebound of the dollar is expected to be temporary, influenced by repositioning due to short-term factors such as the U.S. government shutdown and political instability in other countries [1][5]. Group 1: Dollar Performance - The dollar has increased approximately 3% against a basket of currencies since mid-September, recovering from over three-year lows after a nearly 11% decline earlier this year [1]. - Speculators' net short positions on the dollar decreased to $9.86 billion from a two-year high of $20.96 billion, indicating a shift in sentiment towards the dollar [2]. - The euro has declined about 1.3% in October, while the yen has fallen nearly 3% against the dollar, reflecting broader market dynamics [6]. Group 2: Market Sentiment and Predictions - Analysts express skepticism regarding the sustainability of the dollar's recovery, with expectations of a weakening U.S. economy and declining interest rates in the coming months [3]. - The recent dollar strength is largely attributed to investors adjusting their positions rather than a fundamental shift in economic conditions [3][4]. - Political crises in France and Japan have diverted investor focus from the dollar's challenges, contributing to its recent performance [5].