The euro rose in European markets on Thursday against a basket of global currencies, resuming its gains versus the US dollar and moving higher toward its strongest level in nearly two weeks, supported by the continued decline in US currency levels in the foreign exchange market.

In addition, growing inflationary pressures once again on European Central Bank policymakers are sharply reducing the likelihood of further European rate cuts during the remainder of this year.

Price Overview

Euro exchange rate today: the euro rose against the dollar by 0.2% to $1.1754, from the opening level at $1.1730, with a low of $1.1724.

The euro ended Wednesday’s session down by less than 0.1% versus the dollar, its first loss in four days, after earlier touching its strongest level in nearly two weeks at $1.1779.

Apart from selling and profit-taking, the euro retreated after the Wall Street Journal reported that the United States will provide Ukraine with intelligence for long-range missile strikes on Russia’s energy infrastructure.

US Dollar

The dollar index fell by 0.1% on Thursday, extending losses for a fifth consecutive session and nearing its lowest level in several weeks, reflecting the continued decline in US currency levels against a basket of global peers.

This drop comes amid a string of weak labor market data in the United States, strongly reinforcing expectations for two Federal Reserve rate cuts this year, alongside ongoing concerns related to the government shutdown.

European Interest Rates

Data released Wednesday showed inflation in Europe rose in line with expectations in September, highlighting growing price pressures on ECB policymakers.

Following this data, money market pricing for the ECB to cut rates by 25 basis points in October is currently stable at less than 10%.

Traders have scaled back bets on further ECB monetary easing, signaling the end of this year’s rate-cutting cycle.

Sources: ECB policymakers believe no further rate cuts are needed to achieve the 2% inflation target, despite new economic projections pointing to lower rates over the next two years.

Sources: unless the eurozone suffers another major economic shock, borrowing costs are expected to remain at current levels for some time.

Traders have scaled back bets on further ECB monetary easing, signaling the end of this year’s rate-cutting cycle.

The Japanese yen declined in Asian markets on Thursday against a basket of major and minor currencies, retreating from a two-week high versus the US dollar and heading for its first loss in five days, as correction and profit-taking activity weighed on the currency.

This came alongside a rebound in the US dollar, after the Supreme Court allowed Lisa Cook to remain in her position until January, easing concerns over the independence of the Federal Reserve.

Bank of Japan officials have adopted a more hawkish stance in recent days, which has clearly increased expectations of a potential rate hike in Japan before the end of this year. To reassess these expectations, investors are awaiting further key data on developments in the world’s fourth-largest economy.

Price Overview

Yen exchange rate today: the US dollar rose against the yen by 0.2% to ¥147.32, from today’s opening level of ¥147.04, with a low of ¥146.94.

The yen ended Wednesday’s session up 0.5% versus the dollar, marking a fourth consecutive daily gain, as safe-haven demand persisted on the back of US government shutdown concerns.

US Dollar

The dollar index rose 0.1% on Thursday, recovering from a one-week low and set to post its first gain in five days, reflecting a rebound in US currency levels against a basket of global peers.

The US Supreme Court announced it will hear arguments in January on President Donald Trump’s attempt to remove Federal Reserve governor Lisa Cook, leaving her in her post temporarily.

Tony Sycamore, market analyst at IG in Sydney, said that market concerns over the independence of the Federal Reserve “will now ease over the next few months.”

Japanese Interest Rates

Wednesday’s Tankan survey showed improved sentiment among major Japanese manufacturers for the second straight quarter, with companies maintaining optimistic spending plans.

BOJ officials have turned more hawkish in recent days, including Asahi Noguchi, a former board member and proponent of quantitative easing.

Noguchi said on Monday that the need to tighten monetary policy is growing “more than ever.”

Deputy Governor Shinichi Uchida and Governor Kazuo Ueda are scheduled to deliver speeches on Thursday and Friday respectively.

Traders currently price in a 40% chance of a quarter-point rate hike in Japan on October 30, according to London Stock Exchange data.

To reprice these expectations, investors await further data on inflation, unemployment, and wages in Japan.

Gold prices rose during Wednesday’s trading to reach a new record high amid prevailing concerns about the prolonged US government shutdown and its impact on the American economy.

The US federal government shutdown came into effect today, with the possibility that the monthly jobs report from the Bureau of Labor Statistics due on Friday will be suspended.

Fitch commented on the shutdown, stating that it will not affect the sovereign credit rating of the United States in the near term, but it will have a negative impact on the economy.

Data released today by ADP showed that the US private sector lost 32,000 jobs in September, while markets had expected an addition of 50,000 jobs, with August data revised to a loss of 3,000 jobs compared to an addition of 54,000 in last month’s report.

Additional data released Wednesday by the Institute for Supply Management (ISM) showed that the manufacturing PMI rose by 0.4 percentage points to 49.1 in September, but it remains below the 50-point threshold separating growth from contraction.

On the other hand, the US dollar index declined by 0.1% to 97.7 points as of 20:46 GMT, recording a high of 97.8 points and a low of 97.4 points.

As for trading, spot gold rose by 0.6% to $3,895.1 an ounce as of 20:46 GMT.

The US government entered a shutdown on Wednesday, sparking broad debate across global markets as investors assess the potential repercussions for the wider economy.

Although government shutdowns typically have only a modest impact on capital markets, the timing of this one is critical. The release of US jobs data scheduled for Friday will be delayed — casting a shadow over the Federal Reserve’s outlook just weeks ahead of its next meeting. President Donald Trump also threatened to use the shutdown to carry out a “large number” of public-sector job cuts.

With no clear path to an agreement, there is no visibility on how long federal offices will remain closed. During Trump’s first term, the country experienced what became the longest partial shutdown in history.

On Wednesday, US risk assets were affected. Gold — traditionally viewed as a safe haven during economic or geopolitical turmoil — rose to set its 39th record high this year. European equities gained in midday trading after a muted open, while Asian equities delivered a mixed performance. In global bond markets, activity eased after European government bond yields rose early in the session, while the 10-year US Treasury yield fell 4 basis points after a surprise dip in private payroll data.

Concerns Over “American Dysfunction” Push Investors Toward Alternatives

Luke Bartholomew, Deputy Chief Economist at abrdn, said the shutdown adds to concerns about the credibility of US institutions, fiscal stability, and political “dysfunction.”

Speaking to CNBC’s Squawk Box Europe, he noted: “What strikes me is how much political capital the Trump administration seems willing to spend in an attempt to ‘reform,’ if you will, the Federal Reserve and exert influence.”

He added: “The Fed is ultimately the cornerstone institution of global capital markets. That puts the entire long-term yield curve under pressure, and I expect this to continue. That said, I would be surprised if markets did not eventually look through it.”

Neil Birrell, CIO at UK-based Premier Miton, said a prolonged shutdown could dent risk sentiment in global markets.

“With bond markets reacting to excessive government borrowing needs, tight credit spreads, and equities at stretched valuations, it’s no surprise investors move into safe assets when hit by a negative shock like a US shutdown,” he explained.

He added: “Investors have been complacent about the risks we face, and negative surprises will trigger reactions. Any form of diversification now looks attractive — including silver, cryptocurrencies, and potentially other commodities.”

Impact on Foreign Exchange

Joe Brusuelas, Chief Economist at RSM US, noted that the most immediate impact of the shutdown may be increased pressure on the US dollar or influence on the Fed’s October rate decision.

He wrote in an email to CNBC on Wednesday: “In most cases, US government shutdowns lead to a modest wave of speculative behavior among global investors around rates and currencies. This version of America’s fiscal drama is no different.”

“For there to be a more significant impact on global markets, the shutdown would need to last the entire month and approach the record set in 2018–2019. If that happens, it would likely influence the Fed’s policy decision later this month, which in turn would affect global capital flows, interest rates, and currency values.”

He also warned that widespread federal layoffs “could further depress the dollar, prompting capital flows into the euro and yen.”

Brusuelas added that such layoffs could indirectly hurt European industry:

“Demand for European exports such as automobiles would fall significantly, adding pressure to Germany’s industrial sector.”

UBS: Investors Should “Look Past Shutdown Fears”

Still, Swiss bank UBS said in a Tuesday note that it does not view the shutdown as a major market risk, while acknowledging it is not a welcome development for global investors.

UBS analysts wrote: “Previous shutdowns have had only limited effects on markets. Historically, they caused minor and short-lived volatility in equities and bonds, as investors understand the economic impact tends to be small and temporary… Treasury auctions and payments will continue as normal, and while IPO activity and some regulatory functions may pause, we do not view these as posing systemic risk to market stability.”

They added that any temporary delays in economic data “will not derail the Fed’s ongoing easing cycle.”

“The shutdown will halt the collection and publication of most government data and will affect revisions to past labor market figures, which have recently gained importance… This means the Fed may have to decide in October without updated labor data, but we do not think that will prevent another 25-basis-point cut.”

According to CME’s FedWatch tool, money markets are strongly pricing in a 25-basis-point rate cut at the Fed’s October 29 meeting.

UBS concluded: “We advise investors to look past shutdown concerns and focus on other market drivers — continued Fed easing, strong corporate earnings, AI investments, and their growing returns.”