The dollar declines amid a U.S. government shutdown and concerns over Bank of Japan policies
Global financial markets experienced a quiet trading session filled with uncertainty on Friday, as the U.S. dollar finished its worst weekly performance in months, while the Japanese yen retreated from its peaks affected by the cautious stance of the Bank of Japan and the anticipation of political elections in the country.
The dollar index, which measures the performance of the U.S. currency against a basket of major currencies, fell by 0.1% to 97.78 points. In contrast, both the euro and the British pound rose by 0.2% to reach $1.17355 and $1.346, respectively.
This weakness is largely attributed to the government shutdown in the United States, which has blocked the flow of vital economic data that investors rely on to assess the health of the economy. In this regard, Michael Brown, senior research analyst at "Pepperstone", commented: "We now have a government shutdown in the United States that does not leave a direct practical impact, but it means to market participants that we are missing the usual economic data such as the non-farm payrolls report expected today, which explains the weakness and calmness we are witnessing in trading."
Brown added that the upcoming "ISM" data from the United States "is unlikely to have an impact on market movements," reflecting the prevailing state of waiting in the scene.
On the other side of the Pacific, the Japanese yen fell by 0.1% to 147.375 yen per dollar, recording strong weekly gains of 1.4%, the largest since mid-May.
This daily decline followed cautious remarks from Bank of Japan Governor Kazuo Ueda regarding the global economy, which lowered expectations for an interest rate hike soon. Brown expressed the market's sentiment, saying: "Market participants were somewhat disappointed, as Ueda did not show a clear inclination towards raising rates in October as some of his colleagues have recently, which has put pressure on the yen."
Investors are also awaiting the ruling Liberal Democratic Party elections on Saturday, which will determine Japan's next prime minister, which could affect budget policies and future directions of the central bank.
In the United States, conflicting labor market data bolstered expectations for the Federal Reserve to continue its rate-cutting path. A report from the Chicago Federal Reserve showed that the unemployment rate in September remained steady at 4.3%, while an "ADP" report revealed a loss of 32,000 jobs in the private sector during the same month.
Market tools such as "CME FedWatch" reflect near-complete conviction among traders of a 25 basis point rate cut at the October meeting, with a 89% probability priced in for an additional cut in December.
However, signals from Federal officials are not uniform. Lori Logan, president of the Dallas Federal Reserve, stated that the rate cut last month was an appropriate step, but she indicated her lack of enthusiasm for continuing cuts at this time, leaving the path of U.S. monetary policy surrounded by ambiguity.
