Dollar on track for its strongest week in a year while yen falters

Market Update: Yen Struggles as Dollar Stabilizes

SINGAPORE – The dollar maintained its ground on Thursday, experiencing its most successful week in nearly twelve months, largely attributed to a significantly weakened yen, which has faced challenges following shifts within Japan’s governing party.

This week, investors grappled with political unrest in both Japan and France amidst an ongoing U.S. government shutdown, which hasn’t really helped bolster investor confidence. As a result, many have turned to safer assets, including gold.

The yen experienced significant volatility after the election of conservative Sanae Takaichi as president of Japan’s Liberal Democratic Party. This development has positioned her to potentially become Japan’s first female prime minister, raising expectations of increased fiscal spending and monetary easing.

Recently, the yen dipped to a low of $153 against the dollar before slightly recovering to $152.49. Its value has dropped over 3% this week, marking what could be its worst performance since September 2024.

“The climb of dollar/yen appears unyielding, and it’s hard to see any reversal,” noted Carol Conn, a currency strategist from Commonwealth Bank of Australia.

Looking ahead, Takaichi’s confirmation could act as a catalyst for further yen depreciation, especially if she adopts a more dovish stance on fiscal and monetary policy and hints that the Bank of Japan may hold off on interest rate hikes in the near future.

In France, President Emmanuel Macron is poised to appoint a new prime minister within the next couple of days. However, the euro has also remained subdued as the country continues to deal with a political crisis, which was sparked by Prime Minister Sébastien Lecornu’s unexpected resignation.

Currently, the euro has gained a slight 0.09% to $1.1639, reversing a streak of three days in decline. Still, it’s down by nearly 0.9% this week.

The fluctuations in both the yen and the euro have subsequently bolstered the dollar, which has risen over 1% in the past week, keeping other currencies in check. The pound is up by 0.07% to $1.3413 after hitting a low not seen in nearly two weeks, while the Australian dollar increased by 0.11% to $0.6594.

The New Zealand dollar saw a modest rise of 0.1% to $0.5792 after a prior dip, which was triggered by a significant interest rate cut of 50 basis points from the Reserve Bank of New Zealand. The bank has expressed unease regarding the country’s economy while leaving open the possibility for further easing.

Against a range of currencies, the dollar remained steady at 98.77.

Recent minutes from a Federal Reserve policy meeting highlighted that officials are aware of rising risks to the U.S. job market and are considering rate cuts, though they remain cautious due to persistent inflation and debates about how much borrowing costs may impact the economy.

“The Fed’s minutes reflect policymakers’ hesitations regarding potential rate cuts,” Conn commented.

“The market seems relatively comfortable anticipating two more rate cuts by year-end, which aligns with our expectations as well. However, we have to wait for upcoming indicators, but those won’t be available until the government reopens.”

A prolonged shutdown in the U.S. may hinder the Fed’s ability to make informed decisions in its October meeting, as it will delay the release of crucial economic data.