The U.S. dollar remained below a 10-month high on Friday, creating some breathing room for the Japanese yen at the end of the week. The euro held steady after a rebound but was still close to a low not seen since December. The dollar’s strength is due to expectations that the U.S. economy will fare better than others in the face of higher interest rates. However, uncertainty looms as the U.S. heads towards a partial government shutdown, potentially affecting the release of economic data and creating a “vacuum of uncertainty” for the Federal Reserve.
The Japanese yen is also under scrutiny as it nears the 150 level, which could trigger intervention from Japanese authorities. Core inflation in Tokyo slowed for the third consecutive month, mainly due to falling fuel costs, suggesting that cost-push pressures are starting to peak. Factory output in Japan was flat in August, signaling that companies are feeling the impact of soft global demand and weak signs in China’s economy. While intervention in the currency market may not have a significant impact, it would allow the Japanese government to demonstrate its commitment to tackling the surge in import prices caused by a weaker yen.
Meanwhile, the euro remained slightly weakened at $1.05625, but bounced back from this week’s multi-month low. Investors are awaiting Friday’s consumer price index (CPI) data from the euro zone to gain insights into the bloc’s economic condition. Overall, the uncertain economic outlook and potential government shutdown in the U.S. may influence the Federal Reserve’s decision on future interest rate hikes, adding more complexity to the global currency market.
In summary, the dollar’s strength has slightly eased at the end of the week, giving the yen some breathing room, while the euro has rebounded but remains close to a low. The U.S. economy’s resilience to higher interest rates has supported the dollar, but uncertainty surrounding a potential government shutdown and limited economic data may impact the Federal Reserve’s decision-making. Meanwhile, the Japanese yen faces potential intervention as it approaches the 150 level, while Japan’s inflation slows, and weak global demand affects factory output. Investors are also keeping an eye on the euro zone’s CPI data for further insights into the economy.