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The U.S. dollar held steady on Thursday, supported by weakness in both the euro and yen, as investors weighed ongoing political upheaval in Europe and Japan alongside the effects of a prolonged federal government shutdown in Washington.
By 05:28 ET (09:28 GMT), the U.S. dollar index—which tracks the greenback against a basket of major currencies—was unchanged at 98.94, after touching a two-year high earlier in the session.
France’s Political Crisis Pressures the Euro
In Europe, attention returned to France’s political turmoil, where President Emmanuel Macron is expected to name a new prime minister within 48 hours, following the abrupt resignation of Sebastien Lecornu earlier this week.
Lecornu’s government—France’s shortest-lived in modern history—collapsed within hours of its formation, after facing widespread backlash from both allies and opponents. The chaos has sparked speculation about a snap parliamentary election, though Macron’s office stated that a majority of lawmakers oppose such a move.
Analysts at ING warned that the situation represents both a domestic political and potentially economic crisis, with “indirect contagion” risks to other eurozone economies.
The euro slipped 0.1% to $1.1622, marking its lowest level since late August and extending its weekly loss to 0.8%.
Yen Weakens as Takaichi Victory Shifts Japan Policy Outlook
In Asia, the Japanese yen continued to depreciate after Sanae Takaichi’s victory in the leadership race of Japan’s ruling Liberal Democratic Party, a move seen as favoring fiscal stimulus and loose monetary policy.
The yen traded at ¥152.67 per dollar, its weakest since February, and has fallen over 3.6% this week as traders anticipate increased government spending and fewer Bank of Japan rate hikes under Takaichi’s leadership.
Market participants expect Japan’s Ministry of Finance to closely monitor currency movements, as sharp yen weakness risks renewed verbal or direct intervention.
U.S. Shutdown and Fed Outlook in Focus
The U.S. government shutdown, now in its second week, has halted the release of several key economic indicators, leaving investors without vital data that would normally guide expectations for Federal Reserve policy.
Minutes from the Fed’s September 16–17 meeting revealed a split among policymakers:
- Most officials believe further rate cuts are needed this year to counter labor market risks.
- Several members, however, warned against cutting too quickly amid persistent inflation pressures.
Analysts at Capital Economics noted that most FOMC participants supported moving rates toward a “neutral setting”—a level that neither stimulates nor restrains growth—due to ongoing downside risks in employment.
Market pricing remains firm for a 25-basis-point rate cut at the October meeting, followed by another potential move in December.
Outlook
With the U.S. dollar supported by relative stability, and the euro and yen under pressure from domestic political risks, currency markets are expected to stay volatile in the short term.
Traders now await Fed Chair Jerome Powell’s speech and any new developments from Paris or Tokyo for signals that could set the tone for global FX markets heading into the final quarter of 2025.
