Dollar drops against euro, pressured by Fed and shutdown fears
The U.S. dollar slipped for a third consecutive day against the euro on Thursday, reflecting growing concerns over Federal Reserve dovish signals and escalating U.S.-China trade tensions. The dollar index edged down 0.05% to 98.64 and was on track for a weekly decline of around 0.3%.
While the greenback ticked up slightly against the yen, investor sentiment remained cautious. U.S. Treasury yields hovered near multi-week lows, with the 10-year yield just above 4%, limiting further dollar gains. Analysts are watching for signs of prolonged weakness, with many adjusting their fixed income strategies accordingly.
“The Fed’s Beige Book showed rising layoffs and declining consumer spending,” noted Fed Governor Stephen Miran. “Cutting rates is now more important than ever.”
Rare earth controls deepen China-U.S. trade standoff
Markets are closely monitoring China’s recent expansion of rare earth export controls, which U.S. officials say could significantly disrupt global supply chains. The move has sparked renewed trade concerns, though President Trump still expects to meet Chinese President Xi Jinping later this month in South Korea.
“The question is whether these controls are strategic bargaining tools,” said ING’s Chris Turner. European analysts warn that continued escalation could impact European output by disrupting critical materials.
Euro climbs on French vote, yen steady despite political shift
The euro rose to a one-week high of $1.1651 following French Prime Minister Sebastien Lecornu’s survival of a no-confidence vote. Though France’s political crisis has rattled domestic headlines, euro zone bond markets remain stable. Analysts say postponing pension reform defused immediate tensions but could complicate fiscal recovery plans.
The yen briefly strengthened to 150.51 per dollar but later settled at 151.22. Political developments in Japan, including coalition talks with the Innovation Party, could boost support for candidate Sanae Takaichi ahead of next week’s prime ministerial vote. Analysts at Barclays remain long on USD/JPY, though they caution about potential Bank of Japan intervention or rate hikes if volatility persists.
Asia-Pacific currencies face domestic and external pressures
Australia’s dollar held steady at $0.6506 after unemployment hit a near four-year high, fueling expectations of interest rate cuts. The currency, often seen as a barometer for global risk appetite, remains vulnerable to developments in China.
Meanwhile, China’s yuan firmed to a two-week high after the People’s Bank of China set its strongest daily midpoint in over a year. The move signals Beijing’s intent to support its currency amid growing global tensions.
