The dollar index (DXY00) has risen +0.32% today. The dollar is rising today after the Trump administration signaled its openness to a trade deal with China, easing trade tensions. The current strong rally in stocks is limiting the demand for dollars in terms of liquidity.
The current US government shutdown is bearish for the dollar. The longer the shutdown continues, the more likely the US economy will suffer, a negative factor for the dollar.
The Trump administration on Sunday signaled openness to a trade deal with China, an attempt to ease trade tensions. This follows President Trump’s threat last Friday to impose 100% tariffs on Chinese products and restrict US software exports, starting November 1, in retaliation for China’s sweeping new restrictions on exports of rare earth materials and related technology.
Markets are pricing in a 97% chance of a -25bp rate cut at the next FOMC meeting on October 28-29.
EUR/USD (^EURUSD) is down -0.46% today. The euro is under pressure today from a stronger dollar. The euro is also being weakened by political uncertainty in France, although President Macron announced a new cabinet on Sunday, temporarily easing political uncertainty. The new government must now survive a vote of no confidence expected later this week in the National Assembly to avoid the need to call early elections.
The German wholesale price index for September rose +1.2% year-on-year, the fastest pace in six months.
Swaps are pricing in a 2% chance that the ECB will cut rates by -25 bps at the October 30 policy meeting.
USD/JPY (^USDJPY) is up +0.78% today. The yen is under pressure today from a stronger dollar. Additionally, a strong rally in US stock markets today has reduced safe-haven demand for the yen. Trading activity may be below normal in the yen today as Japanese markets are closed for the Health and Sports Day holiday.
The yen has been under pressure over the past week due to concerns that the election of Sanae Takaichi as leader of Japan’s ruling Liberal Democratic Party, making her the likely new Prime Minister of Japan, will result in a slower timeline for the BOJ’s policy tightening. Takaichi’s surprise victory has tempered expectations that the BOJ could raise interest rates as soon as this month, while raising concerns about increased debt supply due to his support for expanded financial stimulus. Additionally, Japan’s governing coalition collapsed after talks between LDP leader Takaichi and Komeito leader Saito ended without an agreement. The move makes it difficult for Takaichi to gain the support needed to pass budgets or any significant legislation, and could potentially lead to another election.