HG MARKETS:

Currency markets saw notable movement on Tuesday, driven by political developments in Japan and France, alongside uncertainty stemming from the U.S. government shutdown.

The Japanese Yen (JPY) fell to a two-month low against the US Dollar, touching 150.62 per dollar before trading at 150.46. It also hit a fresh all-time low of 176.35 per Euro.

This weakness is attributed to the election of Sanae Takaichi as the leader of Japan’s ruling party, putting her on course to become the next Prime Minister. Takaichi is considered a fiscal dove, suggesting she favors fiscal stimulus, which tends to weaken a currency. Her appointment of former premier Taro Aso as vice president and former finance minister Shunichi Suzuki as secretary-general is seen as confirming her dovish stance.

In reaction to the sliding yen, Japanese Finance Minister Katsunobu Kato stated that authorities are watching for excessive currency movements, reiterating that exchange rates should reflect economic fundamentals.

The Euro (EUR) remained fragile, falling 0.1% to $1.1694 against the dollar. This followed the resignation of France’s Prime Minister Sebastien Lecornu and his government on Monday.

Furthermore, statements from European Central Bank (ECB) officials weighed on the currency. The central bank’s top brass suggested that while current interest rates are appropriate, a slight reduction in borrowing costs might be necessary if the risk of inflation dropping too low increases.

The Dollar Index (DXY) rose 0.1% to 98.23, as the ongoing U.S. government shutdown continued to dominate attention. The White House softened President Trump’s earlier claims about immediate layoffs but warned that job losses could still occur as the shutdown stretched into its seventh day.

The shutdown has already delayed the closely watched monthly jobs report (nonfarm payrolls) and will postpone other key economic releases. With official data unavailable, market focus has now shifted entirely to the Federal Reserve (Fed) policymakers for guidance on future interest rate cuts.

Key Focus: Traders are closely monitoring upcoming speeches from Fed Vice Chair Michelle Bowman and Governor Stephen Miran, as well as the release of the minutes from the September Federal Open Market Committee (FOMC) meeting on Wednesday.

Rate Expectations: Markets remain highly confident in further easing, with the CME FedWatch tool showing probabilities of 92.5% for an October rate cut and 81.5% for a December rate cut.

Other currencies, including the Australian dollar (0.1% weaker at $0.6608) declined against the strengthening dollar.