The euro declined in the European market on Thursday against a basket of global currencies, resuming losses that had paused temporarily yesterday against the U.S. dollar, once again approaching its lowest level in a week, as the U.S. currency was bought as the best alternative investment amid rising financial stability risks in Europe and the United Kingdom.

Consumer price data released this week showed entrenched inflationary pressures on monetary policymakers at the European Central Bank, which led to a decline in the probability of a European interest rate cut in September.

Price Overview

•Euro exchange rate today: the euro fell against the dollar by 0.1% to (1.1650$), from the opening level at (1.1661$), recording a high of (1.1669$).

•The euro ended Wednesday’s session up by 0.2% against the dollar, after earlier hitting a one-week low of 1.1608$.

•Aside from the recovery from lower levels, the euro rose following weak U.S. job openings data, which strongly boosted expectations of a U.S. interest rate cut in September.

U.S. Dollar

The dollar index rose on Thursday by 0.1%, resuming its climb toward a one-week high at 98.64 points, reflecting the continued rise of the U.S. currency against a basket of major and minor currencies.

Investor focus remains on buying the U.S. dollar as the best alternative investment, amid growing concerns about financial stability in Europe and the U.K. and rising debt levels.

According to the CME FedWatch tool: pricing for a 25-basis point U.S. interest rate cut at the September meeting is currently stable at 98%, with probabilities of keeping rates unchanged at 2%.

To reprice these expectations, investors are awaiting a series of important U.S. economic data later today, including private-sector jobs in August, weekly jobless claims, and the performance of the services sector during the past month.

European Interest Rate

•Data released this week showed an unexpected increase in core inflation in the euro area during August, highlighting continued inflationary pressures on the European Central Bank.

•Following this data, pricing for a 25-basis point European rate cut in September fell from 30% to 10%.

•Five sources told Reuters that the ECB is likely to keep rates unchanged next month, though discussions on further cuts could resume in the fall if the eurozone economy weakens.

•ECB President Christine Lagarde said recently in Jackson Hole that the tight monetary policies adopted by the bank in 2022 and 2023 did not lead to recession or sharp increases in unemployment as had historically occurred.

The Japanese yen declined in the Asian market on Thursday against a basket of major and minor currencies, resuming losses that had paused temporarily yesterday against the U.S. dollar, on its way again toward the lowest level in five weeks, due to the growing concerns currently about the political situation in Japan, the world’s fourth largest economy.

Less aggressive comments from a member of the Bank of Japan led to further weakness in the chances of raising Japanese interest rates before the end of this year, while awaiting more solid evidence regarding the path of monetary policy normalization in Japan.

Price Overview

•The exchange rate of the Japanese yen today: the dollar rose against the yen by about 0.2% to (148.27¥), from the opening price today at (148.03¥), and recorded the lowest level at (147.79¥).

•The yen ended Wednesday’s trading up by 0.2% against the dollar, in its first gain in the last four days, within a recovery move after earlier hitting the lowest level in five weeks at 149.14 yen, due to the acceleration of open selling operations.

•Apart from buying from low levels, the yen rebounded after weak data on job openings in the United States, which strongly boosted expectations of a U.S. interest rate cut in September.

Political Situation in Japan

The secretary-general of the ruling party in Japan, Hiroshi Moriyama, one of Prime Minister Shigeru Ishiba’s closest allies, announced his intention to resign from his post, a move that could deepen the crisis within the party and cast a shadow over Ishiba’s political future.

This development comes after mounting pressure on the prime minister following the recent election loss, as calls for his resignation have escalated, though he has so far stuck to his position and refused to step down.

Observers believe that Moriyama’s departure may weaken Ishiba’s internal base and increase the chances of him being subjected to more political pressure in the coming period.

These developments open the door for Sanae Takaichi as one of the leading candidates to succeed Ishiba, as she is known for her economic views supporting the policy of keeping domestic interest rates low, which reinforces expectations of a more accommodative direction in Japanese monetary policy if she assumes office.

Opinions and Analysis

•Kit Juckes, chief FX strategist at Société Générale, said: “On the surface, political uncertainty, and the possibility of Prime Minister Shigeru Ishiba resigning in the coming days or weeks, negatively affects the yen.”

•Lee Hardman, senior currency analyst at MUFG, said: “The aggravation of political uncertainty is likely to remain a barrier, while the absence of a hawkish signal from Deputy Governor Ryuzo Himino on Tuesday will encourage speculators to continue rebuilding short yen positions.”

Japanese Interest Rate

•Ryuzo Himino, Deputy Governor of the Bank of Japan, affirmed that the central bank “should continue raising interest rates,” but at the same time stressed that the uncertainty facing the global economy remains high, which means there is no urgency to increase currently low borrowing costs.

•Nakagawa, a member of the Bank of Japan, warned of the risks of trade policy and is looking to the Tankan report for guidance on the path of monetary policy normalization in the country.

•Pricing for the probability of the Bank of Japan raising interest rates by a quarter of a percentage point at the September meeting is currently stable below 30%.

In order to reprice those probabilities, investors await the release of more data on inflation, unemployment, and wages in Japan, in addition to monitoring comments from some Bank of Japan members.

Gold prices surged to new record levels on Wednesday, supported by a weaker U.S. dollar against most major currencies, mounting concerns over tariffs, and cautious sentiment ahead of upcoming labor market data.

Alphabet shares climbed 7.4% to $227.68 after a U.S. court ruled against breaking up Google’s parent company, removing a significant regulatory overhang. Apple shares also advanced 2.4% to $235.12, buoyed by the same ruling that allows Alphabet to continue payments to Apple in exchange for Google being set as the default search engine on iPhones.

Fresh data from the U.S. Bureau of Labor Statistics showed job openings declined to 7.18 million in July, down from around 7.36 million in June and 7.5 million a year earlier.

Meanwhile, the Federal Reserve’s Beige Book, released Wednesday, noted that U.S. economic activity and employment were little changed in recent weeks, while prices rose at a modest to moderate pace. The mixed assessment underscored why an increasing number of Fed policymakers remain open to resuming interest rate cuts this month.

On the geopolitical front, President Donald Trump accused Chinese President Xi Jinping, Russian President Vladimir Putin, and North Korean leader Kim Jong Un of conspiring against the United States, while hinting at tougher sanctions against Moscow.

In currency markets, the U.S. dollar index fell 0.2% to 98.1 by 20:11 GMT, after hitting a session high of 98.6 and a low of 98.01.

Spot gold rose 1% to $3,628.90 per ounce by 20:12 GMT.

European countries could face a rearmament bill of up to $1 trillion as they respond to the growing Russian threat and the possibility of a significant U.S. military drawdown from the continent, according to a September 3 report from the International Institute for Strategic Studies (IISS) in London.

The 106-page report, “Progress and Shortfalls in Europe’s Defenses: An Assessment,” highlighted major gaps in Europe’s defense capabilities, including production, intelligence, and critical equipment such as long-range missiles and integrated air and missile defense systems.

“The primary driver of this increasing urgency is the Russian military threat and uncertainty over U.S. commitment to defending European allies,” the report said. Strategic assessments vary across European capitals over how soon Russia might pose a direct threat to NATO territory, but most estimates fall between two and five years.

At the same time, the Pentagon is expected to release its own global posture review this month, which could signal a shift of military resources from Europe to the Asia-Pacific. Some NATO officials believe U.S. force reductions in Europe could reach 30%.

Rising Defense Budgets

European leaders have already moved this year to address the challenge. In March, EU leaders pledged billions in new defense spending, with European Commission President Ursula von der Leyen calling it a “defining moment in Europe’s history.”

The bloc also made available up to €150 billion ($160 billion) in EU-backed loans to help member states bolster their militaries, while eurozone fiscal rules were eased to exclude military spending.

U.S. President Donald Trump, who had frequently criticized NATO allies for under-spending on defense and relying too heavily on U.S. power, has more recently praised their commitments following the NATO summit in June, when members agreed to raise defense budgets to 5% of GDP.

Still, the IISS report stressed that the issue is not only about money but also about building capacity. “Europe’s defense industries continue to struggle to scale up production quickly enough, while many European militaries remain unable to meet recruitment and retention targets,” the report noted.

Air and Missile Defense Gaps

The report identified integrated air and missile defense (IAMD) as a particular weakness. Former and current U.S. military commanders have said Europe’s air shield is ill-prepared to counter the scale of the Russian threat.

“What you are seeing in major Ukrainian cities could also be repeated in some of Europe’s major cities,” said Philip Breedlove, former NATO Supreme Allied Commander Europe, in an April interview with Radio Free Europe.

Shortage of Long-Range Missiles

The study also highlighted Europe’s shortcomings in long-range strike. While some countries operate advanced cruise missiles such as the Anglo-French Storm Shadow/SCALP or Germany’s Taurus system, “only a handful of European allies have land-based long-range precision fire systems, and at sea only France and the United Kingdom possess land-attack cruise missiles with a 1,000-kilometer range.”

The European Long-Range Strike Approach (ELSA) project was cited as the most important initiative to strengthen land-attack capabilities up to 2,000 kilometers or more. Initially launched by France, Germany, Poland, and Italy, the project has since been joined by the UK, Sweden, and the Netherlands.

Additional Weaknesses

The report pointed to other deficiencies, including limited reconnaissance and intelligence aircraft, a lack of sovereign large-scale cloud computing capabilities, and slow, poorly coordinated procurement processes.

These defense spending demands come as European governments already face heavy fiscal pressures in areas such as healthcare, education, and social welfare.

The report concluded that meeting these challenges will require many NATO countries in Europe to take financial risks and make politically difficult decisions.