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Political risks are clouded, and the U.S. dollar index is consolidating near the 99 mark
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Hello everyone, today XM Forex will bring you "[XM Foreign Exchange Decision Analysis]: Political risks are clouded, and the US dollar index is consolidating near the 99 mark." Hope this helps you! The original content is as follows:
In Asian trading on Monday, the U.S. dollar index hovered near 99.01, up 0.19% during the day. The main theme of the global foreign exchange market last week shifted from the protracted central bank interest rate game to increasing political uncertainty. The ongoing shutdown of the U.S. federal government, unexpected changes in Japanese politics, and political deadlock in France all www.xmltrust.combine to create a www.xmltrust.complex market picture. Against this background, the U.S. dollar index staged a dramatic rise and fall. Although it recorded its largest weekly gain in more than a year, it ended sharply lower at the weekend due to new concerns about trade disputes. At the same time, the Japanese yen and the euro were each under tremendous pressure due to internal financial and political problems, and their weekly performance was weak. Looking ahead to this week, the market's focus will continue to be on the evolution of political dynamics in various countries. Whether the U.S. government can break the deadlock, whether the delayed key inflation data can be released smoothly, and the final statements of Federal Reserve officials before entering the silent period will jointly determine the short-term direction of the U.S. dollar. At the same time, the clarification of the candidate for Japan's new prime minister and the resolution of the French political situation will also be key variables affecting the trend of the yen and the euro.
Analysis of major currency trends
U.S. dollar: As of press time, the U.S. dollar index is hovering around 99.03. The trend of the U.S. dollar index last week was full of twists and turns. From the beginning of the week to Thursday, thanks to the significant weakness of the euro and the yen, the U.S. dollar index climbed strongly, recording its largest weekly gain since September 2024, rising 1.15% for the whole week, closing at 98.9750 on Friday. However, the situation suddenly changed on Friday, when U.S. President Trump once again threatened to impose significant tariffs. The market expressed concern that the escalation of trade friction will damage the United States.Economic concerns grew rapidly, causing the U.S. dollar index to plummet 0.55% that day, almost giving up part of the week's gains. Looking ahead, once the government shutdown is resolved, market focus may return to economic fundamentals, at which time investors may begin to price in the possibility of weaker U.S. economic data, putting pressure on the dollar.
1. French Prime Minister Le Corny formed a cabinet again after his reinstatement
WhenOn October 12, local time, French Prime Minister Le Corny officially formed a new government after restoring his position as prime minister and announced the list of ministers. In the announced list of cabinet members of the new government, Jean-Noel Barrow remains as Minister of Foreign Affairs; Lacida Dati remains as Minister of Culture; Gérald Darmanin remains as Minister of Justice; Roland Lescure remains as Minister of Finance; Philippe Tabarro remains as Minister of Transport; Naima Mutjo As Minister of Foreign Affairs; Laurent Nunez as Minister of the Interior; Jean-Pierre Farandou as the Minister of Labor; Monica Barbe as the Minister of Ecological Transition; Catherine Waterland as the Minister of Defence; Edouard Guevrey as the Minister of Education; Laurent Jeanbrand as the Minister of Housing. The first ministerial working meeting of the new government will be held on the 14th.
2. The U.S. government continues to "shut down." Trump said the layoffs will be "dominated by Democrats."
The U.S. federal government's "shutdown" entered its 11th day on the 11th. U.S. President Trump said on the 10th that federal government layoffs have begun, and that the layoffs will be dominated by Democrats and the scale of the layoffs will be large. According to reports, the U.S. Department of Treasury, Department of Education, Department of Health and Human Services, Department of www.xmltrust.commerce, Department of Homeland Security and other departments have begun layoffs, and approximately 4,200 employees will be affected. The American Federation of Government Employees issued a statement saying it "has filed a lawsuit." The statement said it was disgraceful that the Trump administration used the government shutdown as an excuse to "illegally lay off" thousands of employees who provide critical services to www.xmltrust.communities across the country.
3. Japan’s Komeito intends to participate in consultations with opposition parties
On the 11th, Japan’s Constitutional Democratic Party Secretary-General Azumi Jun revealed that after the Komeito withdrew from the ruling alliance with the Liberal Democratic Party, it inquired about its intention to participate in consultations with the opposition parties with the LiDP as the core. Komeito leaders have hinted that they will cooperate on political reforms such as strengthening restrictions on political donations by www.xmltrust.companies and groups, and introducing an optional surname system for couples. If the opposition parties form a united front, it may lead to regime change. Before the interim Congress, the parties will www.xmltrust.compete fiercely to win a majority of seats.
4. Defense Minister: The Israeli military has been instructed to prepare to destroy all tunnels of Hamas in Gaza
Israeli Defense Minister Katz said on the 12th that he has instructed the Israel Defense Forces to prepare to destroy all tunnels of the Palestinian Islamic Resistance Movement (Hamas) in the Gaza Strip. Katz said that after the repatriation phase of detainees is over, Israel's main challenge will be to destroy all Hamas underground tunnels in the Gaza Strip, which will require both direct action by the Israeli military and through an international mechanism to be established under the leadership and supervision of the United States. Katz said that this is the primary significance of implementing the established principles of demilitarization of Gaza and the disarmament of Hamas, and he has instructed the Israel Defense Forces to prepare to carry out this task. It is unclear how the Israeli military will destroy Hamas tunnels in areas not controlled by the Israeli military.
5. Report: Australia is considering reaching a key minerals agreement with the United States
According to reports, as a mineral asset agreement to be reached with the United States,Australia is considering setting legal minimum prices for critical minerals and providing financial support for new rare earths projects as part of a source agreement. According to the report, Australian government officials have launched negotiations with miners to explore how to fund a A$1.2 billion (approximately US$776.28 million) "Critical Minerals Strategic Reserve" plan. Reports indicate that Albanese hopes to finalize the agreement before meeting U.S. President Trump in Washington on October 20.
Institutional View
1. Capital Economics: Employment growth may allow the Bank of Canada to focus on the upside risks of CPI
Bradley Saunders, an economist at Capital Economics, said that Canadian policymakers may be relieved because although the labor market is weak, it is not in a dire situation. What's more, data showing payrolls rose by 60,400 could convince Bank of Canada officials to focus on upside risks to inflation for now, potentially keeping interest rates steady later this month, Saunders said. Excluding job losses in the wholesale and retail industries, Canada's report showed broad strength across most industries. Still, the unemployment rate remained unchanged at 7.1%, still the highest level in nearly a decade excluding the pandemic.
2. TD Securities: Japan’s Komeito Party and the Liberal Democratic Party may reach a www.xmltrust.compromise to continue the ruling alliance
Alex Loo, macro strategist at TD Securities, said that the yen has not seen dramatic fluctuations, reflecting investors’ belief that Japan’s Liberal Democratic Party leader Sanae Takaichi can still push his reflation policy in Congress with the support of small parties such as the Democratic Party. The situation is still at an early stage and Takaichi Sanae will resume negotiations with Komeito next week. Given the long-term relationship, the two parties may www.xmltrust.compromise with each other to reach an agreement.
3. Institutions: Traders are betting that the U.S. government shutdown will last until the end of October.
In Polymarket and other prediction markets, traders increasingly believe that the U.S. government shutdown will last until the end of October or longer. Based on the implied probability of trading prices on Polymarket, the current probability of the U.S. government shutdown lasting more than 30 days is 37%, up from 15% when the shutdown began on October 1. The longest government shutdown in U.S. history occurred during Trump's first term, lasting 34 days from December 2018 to January 2019. On another forecasting platform, Kalshi, the probability of a government shutdown lasting more than 30 days is currently 39%. Traders on the platform averagely expect the government shutdown to last 24.7 days.
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