US Dollar Surges Amid Global Instability and Government Shutdown

The US dollar index climbed to a near two-month high of 99.33 during a week of significant global instability. The rally was primarily fueled by the depreciation of the euro and yen. In Japan, the yen hit an eight-month low after Sanae Takaichi won the Liberal Democratic Party leadership election, sparking investor fears that her preference for financial stimulus would delay interest rate hikes by the Bank of Japan.

Simultaneously, the euro fell to a six-week low following the abrupt resignation of French Prime Minister Sebastien Lecornu, who left office just 26 days into his tenure. President Emmanuel Macron faced pressure to appoint a successor amid a national deficit and street unrest. These geopolitical shifts coincided with a US government shutdown that entered its second week, leaving over 250,000 federal workers without pay and delaying critical macroeconomic data. The instability drove gold prices past $4,000 per ounce for the first time on record.

US monetary policy added to the volatility. While Federal Open Market Committee minutes indicated some members judged it appropriate to ease policy, officials like Neel Kashkari and Jeff Schmid warned that inflation remained stubbornly high. President Donald Trump contributed to market fluctuations by threatening mass firings of federal workers and announcing tariffs against China, though he later softened these warnings and signaled a halt to strikes against Iran to pursue a diplomatic deal.