Dollar Mixed As Yen Selloff Wanes, Euro Hit By French Politics

Economic

Forex

Summary:

Yen stabilizes as traders reassess Takaichi's fiscal policies; Euro pressured by French political uncertainty and budget challenges; Fed's more hawkish tone influences dollar amid rate cut expectations.

The dollar was mixed on Thursday as a selloff in the Japanese yen appeared exhausted for now, while the euro was dented by political uncertainty.

The yen reached its weakest level since mid-February against the greenback on concerns that Sanae Takaichi, the newly elected head of Japan's ruling party, will introduce more fiscally expansive policies.

But the yen got a modest bid on Thursday as traders evaluated how much room she will have to stimulate the economy.

“Traders are turning a little bit more sceptical on the Takaichi administration's capacity for passing fiscal stimulus and pushing back against the Bank of Japan's tightening plans,” said Karl Schamotta, chief market strategist at Corpay in Toronto.

“That's a reflection of underlying inflation dynamics in Japan. The reality is that Japanese households are agitating for change because inflation is running at elevated levels,” Schamotta said.

Takaichi said on Thursday she will immediately issue an order to compile a package of steps to cushion the economic impact of rising living costs once chosen by parliament to become next prime minister.

The dollar was last flat on the day at 152.67 yenafter earlier reaching 153.21, the highest since February 13.

The euro, meanwhile, has dropped since Prime Minister Sebastien Lecornu tendered his and his government's resignation on Monday. The political paralysis has made it challenging to pass a belt-tightening budget sought by investors that are increasingly worried by France's expanding deficit.

French President Emmanuel Macron’s office said on Wednesday he would appoint a new prime minister within 48 hours.

The single currency was last down 0.15% at $1.1608. The dollar index gained 0.15% to 99.00 and reached 99.10, the highest since August 1.

The dollar is being aided by some more hawkish commentary by Federal Reserve officials.

Minutes from the U.S. central bank’s September meeting released on Wednesday showed that officials agreed that risks to the U.S. job market had increased enough to warrant an interest rate cut but remained wary of high inflation.

“We are seeing a more hawkish tone from Fed policymakers, both in the minutes from September's meeting as well as ongoing commentary. And that's pushing back on market expectations for further aggressive easing,” said Schamotta.

Traders are pricing in a 95% chance that the Fed cuts rates by 25 basis points at its October 28-29 meeting, while the odds of an additional cut in December have dropped to 82%, from 90%, in the past week, according to the CME Group’s FedWatch Tool.

New York Fed President John Williams backs more interest rate cuts this year given the risk of a further slowdown in the labor market, he said in an interview published by the New York Times on Thursday.

Traders are also focused on how long the U.S. federal government shutdown will last, with the economy likely to take a bigger hit the longer it drags on.

The U.S. Internal Revenue Service said on Wednesday it will furlough more than 34,000 employees due to the government shutdown, effectively shuttering taxpayer call centers.

In cryptocurrencies, bitcoingained 0.44% to $123,478.87.

Source: TradingView

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Adam

Economic

JPMorgan Chase (JPM.N) CEO Jamie Dimon warned of a heightened risk of a significant correction in the U.S. stock market within the next six months to two years, the BBC reported.

"I am far more worried about that than others," Dimon said, adding there were a "lot of things out there" creating an atmosphere of uncertainty, pointing to risk factors including geopolitical tensions, fiscal spending, and global remilitarization.

"All these things cause a lot of issues that we don't know how to answer," he told the BBC in an interview on Wednesday, highlighting that the U.S. stock market faces increased risks of being overheated.

Dimon also expressed mild concern about inflation but remained confident in the Federal Reserve's independence despite criticism from the Trump administration of Fed Chair Jerome Powell.

Dimon expressed caution about the U.S. economic outlook last month, warning that the full impact of tariffs, immigration, geopolitics, and President Donald Trump's tax and spending policies remains uncertain due to their long-term cycles.

Source: reuters

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Adam

Cryptocurrency

Bitcoin (BTC-USD) and gold (GC=F) climbed to record highs this week, underscoring two sides of the so-called debasement trade as investors hedge against weakening fiat currencies.

Even traditional gold bulls are taking notice of bitcoin’s growing role as “digital gold.”

“The bitcoin trade is too large to ignore,” Paul Karger, Twin Focus co-founder and managing partner, told Yahoo Finance on Wednesday. “Everybody that's been calling bunk on bitcoin the last decade has been proven wrong."

On Thursday, bitcoin hovered below $122,000, down from Monday’s all-time high north of $125,000. The world's largest cryptocurrency is up 31% year to date.

Karger said he still favors a larger 5% allocation to gold, with a smaller holding in bitcoin across client portfolios, but acknowledged that the world’s largest cryptocurrency “has a place in a diversified portfolio.”

Karger suggested restructuring the fixed-income portion of the traditional 60/40 portfolio, which typically allocates 60% to equities and 40% to bonds.

He recommended diversifying away from long-dated bonds in favor of shorter-term debt, real estate, digital assets, gold, and broader commodities such as copper and AI-infrastructure plays.

Gold has been a stellar trade this year, surging to a record high above $4,060 per ounce. The precious metal retreated slightly from that level on Thursday, but is still on pace for its best annual return in more than four decades.

“Absolutely, you should own gold,” said Karger. “It's just a great store of value. Gold has had a 2,000-year history of calling bunk on currencies.”

For those holding physical bullion, he recommended coins over bars, which can be harder to resell, though either form should be stored securely.

Gold futures have risen in nine of the past 10 sessions, setting new all-time highs for 10 straight trading days, an extraordinary run that’s driven year-to-date gains of around 55%.

Source: finance.yahoo

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Golden Gleam

Commodity

Gold prices held above $4,000 an ounce on Thursday as investors assessed the Israel-Hamas ceasefire deal, while broader geopolitical and economic uncertainty alongside expectations for U.S. rate cuts sustained bullish sentiment towards the metal.

Silver hit a record high, bolstered by gold's record-breaking rally, growing investor demand and a supply deficit.Spot gold was steady at $4,038.49 per ounce at 1132 GMT. U.S. gold futures for December delivery fell 0.3% to $4,057.80.Gold prices rose above $4,000 per ounce for the first time on Wednesday, hitting a record high of $4,059.05.

Silver was up 1.5% at $49.63 per ounce. The metal has gained over 70% this year, benefiting from the same factors as those driving gold's rally as well as tightness in the spot market.

"The interesting aspect about the silver market is that the net long positions are only modestly higher so this is not a rally based upon speculative interest. It's got some pretty solid fundamentals attached to this move in the silver price," said independent analyst Ross Norman.U.S. President Donald Trump announced that a ceasefire and hostage deal had been reached between Israel and Hamas under the first phase of his plan to end the war in Gaza.

"Gold's rally is facing resistance as the Gaza diplomatic breakthrough reduces risk-off flows, while the ongoing U.S. dollar recovery undermines bullion's strength, leaving it vulnerable to pullbacks," said Nikos Tzabouras, Senior Market Analyst at Tradu."However, the bullish bias remains intact, and the path to new all-time highs is still wide open."

The U.S. dollar index (.DXY), opens new tab hovered near a two-month high, making dollar-priced bullion more expensive for overseas buyers.

Geopolitical risks, including the Middle East crisis and the war in Ukraine, alongside strong central bank gold buying, ETF inflows, U.S. rate cut expectations, and economic uncertainties stemming from tariffs, have all contributed to gold's rally.

The metal has gained more than 53% year-to-date and is on track to record the largest annual gain since the 1979 oil crisis.

Federal Reserve officials agreed that risks to the U.S. job market were high enough to warrant a rate cut, but remained wary amid stubborn inflation, according to minutes of the September 16–17 meeting released on Wednesday.

Markets are currently pricing in a 25 basis-point cut in both October and December. FEDWATCH

"The ongoing U.S. government shutdown has injected momentum into (gold's) trade, alongside mounting fiscal concerns in Japan and France amid recent political leadership changes," UBS said in a note.

Non-yielding gold thrives in a low interest-rate environment and during times of economic and geopolitical uncertainty.

"If risk sentiment continues to improve, this may drag gold prices lower in the near term as investors rush back toward riskier assets," said Lukman Otunuga, senior research analyst at FXTM.

Platinum edged 0.1% higher to $1,663.71 and palladium gained 1.9% to $1,476.76, hitting a more than two-year high.

Source: Kitco

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Samantha Luan

Forex

Political

Economic

Key points:

● Kim Jong Un calls for renewed loyalty to socialism

● China's Li Qiang, Russia's Dmitry Medvedev and Vietnam's To Lam to attend celebrations

● Possible military parade to mark Workers' Party anniversary

North Korean leader Kim Jong Un has praised the legacy of the ruling party and called for renewed loyalty to socialism in a speech ahead of Friday's 80th anniversary of the founding of the Workers' Party of Korea, state media KCNA reported.Chinese Premier Li Qiang, a delegation from Russia's ruling party led by chairman Dmitry Medvedev as well as Vietnam's Communist Party chief To Lam, are among foreign dignitaries due to attend celebrations in the isolated state this week.

Vietnam's government confirmed Lam and his delegation had departed for Pyongyang on Thursday for the first visit by a Vietnamese Communist Party leader to North Korea in nearly 20 years. Cooperation agreements were expected to be signed during the visit, according to people familiar with the planning.Kim visited the Party Founding Museum in Pyongyang on Wednesday with senior party officials and delivered what state media called a "significant speech" honouring the party's founders and revolutionary forerunners, KCNA said.

The North Korean leader paid tribute to his late grandfather and state founder Kim Il Sung and anti-Japanese fighters for laying a "solid cornerstone" for the party's enduring strength and success, the report said.Reflecting on eight decades of party history, Kim said it was a time for the current generation to renew its understanding of its "revolutionary obligations and duties" to complete the socialist cause begun by its predecessors.Kim also pledged to preserve the party's ideological purity and vitality "without decrepitude and discolouration," calling the Party Founding Museum a "sacred sanctuary" representing the party's tradition.

Last month, the North Korean leader stood side by side with Chinese President Xi Jinping and Russian President Vladimir Putin at a massive military parade in Beijing to celebrate the 80th anniversary since Japan's defeat at the end of World War Two, a move aimed at bolstering Kim's diplomatic standing.Nuclear-armed North Korea has not yet confirmed whether a military parade will take place to mark this week's holiday.South Korean officials said there were signs that Pyongyang will stage a military parade to commemorate the founding of the Workers' Party of Korea, the Yonhap news agency reported last week.

Source: TradingView

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Adam

Forex

Major currency pairs are driven primarily by yield differentials between the respective countries. The basic idea is that investors care about the return they can earn on cash or bonds in one country versus another. So, if US yields are higher than Japanese yields, holding dollars is more attractive than holding yen, and this capital flow can push up the USDJPY pair. Conversely, if Japanese yields are higher than US yields, holding yen becomes more attractive.

Bond yields are mainly driven by expectations of monetary policy, so it's not the current yield that investors care about but the future yield based on central bank policy expectations. The yield differential is not the only driver of currency pairs but it's the most influential one and explains 90% of FX moves.

Now, in the picture below, you can see that there's currently a huge divergence between the US-Japan yield differential and the USDJPY pair.

There's a huge divergence between the US-Japan yield differential and the USDJPY pair_1

US-Japan 10yr yield differential (blue) vs USDJPY pair (red)

The last time we had such a big divergence was in July 2024. The FX pair eventually caught up with the yield differential with an aggressive move. It started with an intervention on July 11 that propped up the yen. Then we got reports of a potential BoJ rate hike. Then we got the "unexpected" BoJ hike on July 31. And finally, we got the growth scare on August 2 triggered by a weak US NFP report.

Today, the divergence has been driven by a few factors but the main ones have been overstretched US dollar shorts and BoJ pushbacks on rate hikes. The US dollar shorts started to get unwound as we reached the peak in rate cuts pricing for the Fed and some better than expected US data propped up the dollar further. Now, with the US government shutdown we are not getting the data needed to reprice further and if we get another soft NFP report or a benign US CPI, then the pricing will not change much.

On the Japanese yen side, the BoJ surprised at the last meeting as two members voted for a rate hike and gave the JPY a boost. At the press conference though, Governor Ueda played down the dissenting votes and the yen eventually erased the gains. Lastly, the victory of Takaichi over the weekend sinked the JPY further as markets expected more expansionary fiscal policy and another delay in rate hikes.

The markets might be having an Abe-Kuroda deja-vu, but today's context is different in my opinion. In fact, we are not coming out of a global financial crisis, and Japan is not fighting against deflation. Just these two are enough to see that the context is very different. What weighed on business sentiment this year were Trump's tariffs.

Despite the tariffs though, the Japanese Q2 growth was revised sharply higher recently and the Tankan survey (which is what the BoJ has been focusing on) showed that confidence among big Japanese manufacturers improved for the second straight quarter and firms maintained their upbeat spending plans. Moreover, Takaichi is expected to increase government spending and that should support growth further.

There are expectations of a JPY intervention given the aggressive selloff this week. This is something to watch out for as it could mark a short-term top in the USDJPY pair. The BoJ might also decide to pre-emptively hike rates at the upcoming meeting, so keep an eye on the news as we could get "leaks" before the actual meeting and the market will of course position into the rate hike in advance. Right now, the market is pricing just a 27% probability of a hike in October and less than 50% chance of a rate hike before year-end.

Source: investinglive

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Warren Takunda

Economic

The head of the International Monetary Fund has issued a stark warning about the mounting risks facing the global economy, saying: “Buckle up: uncertainty is the new normal.”

As finance ministers and central bankers prepare to meet in Washington for the IMF’s annual meetings next week, its managing director, Kristalina Georgieva said the world economy had shown surprising resilience in the face of Donald Trump’s trade war.

The US is now expected to avoid recession, despite the imposition of historic tariffs on many of its trading partners, and the global economy is forecast to slow “only slightly this year and next”, she said.

But Georgieva pointed to growing signs of strain, including the record gold price – which topped $4,000 an ounce on Wednesday, signalling anxiety among investors – and exceptionally high valuations for US stocks.

“Before anyone heaves a big sigh of relief, please hear this: global resilience has not yet been fully tested. And there are worrying signs the test may come,” she told an audience at the Milken Institute in Washington.

Georgieva suggested the full economic impact of US tariffs “is yet to unfold”, after many firms front loaded exports earlier this year to dodge the levies. “Buckle up: uncertainty is the new normal and it is here to stay,” she warned.

In the last update of its World Economic Outlook in July, the IMF forecast global GDP growth of 3% for this year – a modest slowdown from 3.3% in 2024. It will update its projections at next week’s meetings.

While financial markets have broadly remained calm in the face of policy turmoil, she said this was “masking but not arresting some softening trends”, and warned: “History tells us this sentiment can turn abruptly.”

Share prices in the US have surged to fresh highs in recent weeks, driven by rocketing valuations for the “magnificent seven” tech firms, including chip maker Nvidia and Elon Musk’s electric vehicle-maker Tesla.

Optimism about future productivity gains from generative AI have continued to underpin confidence on Wall Street, despite signs of a slowdown elsewhere, including in the US jobs market.

Drawing a parallel with the dotcom bubble at the turn of the millennium, Georgieva said; “Today’s valuations are heading toward levels we saw during the bullishness about the internet 25 years ago.

“If a sharp correction were to occur, tighter financial conditions could drag down world growth, expose vulnerabilities, and make life especially tough for developing countries.”

The IMF is urging policymakers in large economies to take action to reduce the risks of instability by addressing global imbalances – including calling on the US to tackle its spiralling public sector deficit.

Trump’s tax cuts, targeted at higher earners, are expected to add more than $3tn to US public debt over the next decade – though the US president has hailed tariff revenues as a way of improving the nation’s finances.

Georgieva also called on Beijing to carry out reforms aimed at kickstarting growth and boosting household spending, saying that in China, “private savings are chronically high”.

The Bulgarian economist also offered what she called “tough love”, to “my beloved native Europe”, urging the EU to appoint a “single market tsar”, to accelerate the integration of markets.

“Enough lofty rhetoric on how to lift competitiveness – you know what must be done. It is time for action,” she said. “Remove border frictions in the labour market, goods and services trade, energy and finance. Build a single European financial system. Build an energy union. Complete your project.”

She also highlighted growing public frustration at the economic status quo in some countries, warning: “Many people in many places – especially the young – are taking their disappointment to the streets: from Lima to Rabat, from Paris to Nairobi, and from Kathmandu to Jakarta, all are demanding better opportunity.”