The US dollar remained strong but off a 10-month high on Friday, allowing the Japanese yen to gain some breathing room amid concerns of intervention. The euro, on the other hand, held steady after a rebound but was still close to its January low. The dollar has been boosted by expectations that the US economy can withstand higher interest rates better than other economies. However, US Treasury yields fell from multi-year highs, which could impact the dollar’s rise. Adding to the uncertainty is the possibility of a partial government shutdown in the US, potentially affecting the release of economic data. This could create further uncertainty for the Federal Reserve as it decides whether or not to raise rates again this year.
The Japanese yen remains a focus as it trades near the 150 level, which could trigger intervention from Japanese authorities. Core inflation in Japan’s capital slowed in September for the third consecutive month, mainly due to falling fuel costs, indicating that cost pressures are peaking. Factory output was also flat in August, reflecting the impact of soft global demand and weak signs in China’s economy. While intervention in the currency market may have limited impact, there is political incentive for the Japanese government to demonstrate its seriousness in tackling import price surges resulting from a weaker yen.
Meanwhile, the euro dipped slightly and investors are looking ahead to Friday’s CPI data for the eurozone to gain insights into the bloc’s economy. Overall, uncertainties surrounding government shutdowns, the release of economic data, and potential interventions in the currency market are contributing to a cautious sentiment among investors and prompting them to adopt a wait-and-see approach.
In summary, the dollar’s strength remains intact, but it has eased off its 10-month high, allowing the yen to gain some space. The euro has rebounded slightly but is still close to its lowest point since December. Uncertainties surrounding government shutdowns and the release of economic data, combined with the possibility of interventions in the currency market, are creating a cautious outlook among investors.