Dollar remains firm at two-month high

The dollar index strengthened to around 99 on Thursday, hovering near two-month highs, supported by broad weakness across major currencies and safe-haven flows amid ongoing political and economic uncertainty.

The greenback has surged more than 3% against the yen this week after conservative candidate Sanae Takaichi’s victory in Japan’s leadership race fueled expectations for aggressive fiscal stimulus and a prolonged period of accommodative monetary policy. The yen’s retreat underscored renewed divergence between the Bank of Japan and other major central banks, helping drive the dollar’s upward momentum.

Meanwhile, the dollar gained nearly 1% versus the euro after the unexpected resignation of French Prime Minister Sébastien Lecornu and his cabinet sparked short-term political jitters across European markets.

Although President Emmanuel Macron is expected to appoint a replacement swiftly, the upheaval added pressure to an already fragile eurozone sentiment amid sluggish growth and persistent inflation challenges.

In the US, investors continued to assess the economic fallout from the ongoing government shutdown, now entering its third week, which has disrupted federal data releases and raised concerns about potential knock-on effects for consumer and business confidence.

Despite the uncertainty, US Treasury yields edged higher, supported by safe-haven inflows and resilience in recent economic data.

Minutes from the latest Federal Open Market Committee (FOMC) meeting revealed a split among policymakers over the timing and scale of future rate cuts, reflecting the challenge of balancing sticky inflation with signs of softening labor market conditions.

Traders are now awaiting remarks from Fed Chair Jerome Powell later today for further clarity on the central bank’s policy trajectory.

Analysts noted that unless Powell signals a stronger dovish pivot, the dollar’s upward bias could persist in the near term, particularly as divergent monetary outlooks across major economies continue to widen.