Dollar Strengthens Amid Yen Weakness and Global Political Uncertainty

The U.S. dollar held firm on Thursday, poised for its strongest weekly performance in nearly a year, bolstered by a weakening yen and growing global political uncertainty. Market sentiment has been rattled by leadership shifts in Japan, political turmoil in France, and an ongoing U.S. government shutdown, prompting investors to seek refuge in safe-haven assets like gold.

The Japanese yen faced intense pressure after conservative leader Sanae Takaichi was appointed head of Japan’s Liberal Democratic Party, paving the way for her to become the country’s first female prime minister. Expectations of continued fiscal stimulus and loose monetary policy have fueled the yen’s decline. The currency was last seen at 152.49 per dollar, recovering slightly from an eight-month low of 153. It remains down over 3% for the week, marking its worst performance since September 2024.

“The dollar/yen rally has been relentless,” noted Carol Kong, currency strategist at the Commonwealth Bank of Australia. “If Takaichi maintains her dovish stance and the BOJ signals no near-term rate hikes, the yen could weaken further after the October policy meeting.”

In Europe, the euro traded modestly higher at $1.1639, halting a three-day losing streak but still down 0.9% for the week amid France’s political crisis. President Emmanuel Macron is expected to name a new prime minister within days following Sebastien Lecornu’s resignation.

Elsewhere, sterling edged up to $1.3413, and the Australian dollar rose to $0.6594, while the New Zealand dollar gained 0.1% to $0.5792 after a sharp fall triggered by a surprise 50 basis point rate cut by the Reserve Bank of New Zealand.

The Federal Reserve’s September meeting minutes revealed officials’ growing concern over labor market risks but ongoing caution about inflation. Despite the uncertainty, investors continue to expect around 44 basis points of rate cuts by December, keeping the dollar index steady at 98.77.