Dollar set for best week in a year

The dollar index held above 99.3 on Friday, remaining near a two-month high and on track to gain nearly 2% for the week — its strongest weekly advance in a year — supported by sharp weakness in the yen and euro.

The greenback’s rally was fueled by political and monetary divergence across major economies, with investors seeking safety amid renewed global uncertainty.

The yen is heading for a nearly 4% weekly loss against the dollar, its steepest drop since early March, after fiscal dove Sanae Takaichi’s victory in Japan’s leadership race strengthened expectations of higher public spending and prolonged monetary accommodation under the Bank of Japan.

Meanwhile, the euro has fallen about 1.5% versus the dollar as political instability deepened in France, where President Emmanuel Macron continues to struggle to appoint his sixth prime minister in less than two years, adding to investor anxiety about fiscal coherence and eurozone unity.

In the United States, the government shutdown entered its ninth day after the Senate failed to reach a funding deal, raising concerns about delays to key economic data releases and potential disruptions to federal services.

The absence of fresh data has left markets reliant on earlier indicators suggesting cooling growth and a weakening labor market, reinforcing expectations that the Federal Reserve will soon begin an easing cycle.

Futures markets now price a 95% probability of a 25-basis-point rate cut at the Fed’s upcoming meeting, while the likelihood of an additional move in December has eased to around 80% from 90% a week ago. However, with inflation still above the 2% target and policymakers divided, traders remain cautious about the pace and scale of future rate reductions.

Analysts noted that ongoing political uncertainty and the shutdown’s fiscal implications could sustain safe-haven demand for the dollar in the short term, even as broader monetary easing expectations cap its upside.