The euro and yen continued to decline for a third straight day against the greenback, weighed down by political uncertainty in France and expectations of increased fiscal spending in Japan. Aggressive policy moves by both countries have pushed up risk premiums on government bonds and weakened their respective currencies.
Meanwhile, global stocks rose despite the ongoing US government shutdown. Fiscal and political crises in Europe and Asia have prompted investors to turn to the dollar and gold, which surged above US$4,000 an ounce for the first time.
The US dollar index strengthened to its highest level since August at 98.99, supported by safe-haven demand and expectations that the Fed will cut interest rates by 25 basis points this month. While some officials like Jeff Schmid have ruled out further easing, markets are still pricing in a potential 110 basis points cut by 2026.
In France, the Socialist party's rejection of the government's budget added to pressure on the euro, while in Japan, the victory of expansionary fiscal policy-minded Sanae Takaichi continued to push the yen to ¥153, its lowest since February.
Elsewhere, the New Zealand dollar fell after the country's Reserve Bank cut rates by 50 basis points, while the Chinese yuan also weakened 0.1%. Global policy uncertainty and geopolitical risks remain supportive of demand for the US dollar as a key hedge.
