As the US government shutdown continued, the US dollar rose for the second day in a row on Tuesday (October 7); the yen’s decline intensified after the Liberal Democratic Party’s presidential election, and carry trades returned, triggering a new round of leveraged selling.
The ICE Dollar Index (DXY), which tracks the greenback against six major currencies, rose 0.5% to 98,578.
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Sanae Takaichi, tipped to become Japan’s next prime minister, has pledged to boost the economy through aggressive fiscal spending and criticized the Bank of Japan‘s interest rate hikes.
Money market traders currently estimate that the Bank of Japan has only a 26% chance of raising interest rates at its next policy meeting on the 30th of this month, down from around 60% before Koichi’s election victory.
The dollar rose 1% against the yen to 151.86, and hit 151.93 at one point, its highest level since February 19.
Furthermore, the euro continued to weaken after the resignation of French Prime Minister Sébastien Lecornu on Monday 6, increasing pressure on President Emmanuel Macron and casting a shadow over France’s budgetary consolidation plan. The euro lost 0.43% against the dollar, to 1.1659 dollars.
