The US dollar headed toward its third consecutive daily loss against the euro on Thursday, while edging slightly higher against the Japanese yen, as ongoing concerns over US–China trade tensions and dovish remarks from Federal Reserve officials weighed on market sentiment.

Analysts said political headwinds have pressured the yen, though they expect the currency to find near-term support from the anticipated US interest rate cuts, the end of the Fed’s quantitative tightening program, and the potential rise in market volatility, which typically benefits safe-haven assets.

US Treasury yields remained near multi-week lows, with the 10-year yield hovering just above 4%, adding pressure on the dollar as investors continued to assess the impact of the prolonged US government shutdown.

The Federal Reserve’s Beige Book, released Thursday, painted a weak picture of potential support for US interest rates, noting signs of economic softness, including increased layoffs and weaker spending among middle- and lower-income households. Fed Board member Steven Miran said on Wednesday that rate cuts have now become “more urgent.”

The dollar index, which measures the greenback’s performance against six major currencies, fell 0.05% to 98.63 points, heading for a weekly decline of around 0.3%.

Focus on Chinese Rare Earth Metals

Investors turned their attention to China’s latest expansion of export restrictions on rare earth metals — a move sharply criticized by senior US officials on Wednesday, who warned it could disrupt global supply chains.

Chris Turner, head of global markets at ING, said, “The question investors are asking is whether China’s proposed restrictions on rare earth exports are merely a bargaining chip to gain greater concessions from the United States.”

Amid the renewed escalation, US Treasury Secretary Scott Bessent confirmed that President Donald Trump still expects to meet Chinese President Xi Jinping in South Korea later this month.

Joseph Capurso, head of foreign exchange at Commonwealth Bank of Australia, noted, “A temporary extension rather than a comprehensive deal resolving all trade issues remains the most realistic outcome, compared to the risk of further retaliatory escalation.”

The Australian dollar held steady at 0.6511 US dollars after data showed the unemployment rate rose to its highest level in about four years in September, reinforcing expectations for a rate cut.

The risk-sensitive Australian currency has experienced sharp swings this week due to trade tensions, as investors shifted toward safe-haven assets.

Meanwhile, the Chinese yuan climbed to a two-week high against the dollar after the People’s Bank of China set its strongest daily fixing in a year.

Political Drama in France in the Background

The euro hit a one-week high, rising 0.10% to 1.1656 dollars, as investors awaited another round of political turbulence in France, where Prime Minister Sébastien Lecornu is expected to survive two no-confidence votes in parliament.

Nevertheless, the French political crisis has had little impact on eurozone bond markets, as investors see limited downside risk for French bonds in the absence of early elections.

However, delaying pension reform until after 2027 allowed Lecornu to defuse the crisis temporarily, while complicating the government’s efforts to restore fiscal balance, according to analysts.

Yen Between Support and Risk

The Japanese yen briefly touched a one-week high at 150.51 per dollar before settling slightly higher at 151.11 per dollar.

Japan’s ruling Liberal Democratic Party, weakened by internal divisions, is set to begin talks with the right-wing Innovation Party on Thursday — discussions that could help Sanae Takaichi secure victory in next week’s prime ministerial vote.

Shinichiro Kadota, head of FX and rates strategy at Barclays Tokyo, said, “Regardless of the outcome of the leadership election, markets are likely to expect more expansionary fiscal policies.”

He added, “We continue to hold long dollar-yen positions in anticipation of further gains, while remaining alert to the risk of government intervention or a Bank of Japan rate hike if the trend extends.”

Gold prices rose in European trading on Thursday, extending their gains for the fifth consecutive session and hitting a new all-time high, continuing to break records as they approached the 4,300-dollar-per-ounce level for the first time in history.

The rally came amid strong safe-haven demand for the metal and was supported by a weaker US dollar against a basket of global currencies, as markets priced in strong expectations that the Federal Reserve will cut interest rates in both October and December.

Price Overview

• Gold prices rose by 0.8% to 4,242.13 dollars per ounce — the highest on record — from an opening level of 4,207.63 dollars, after touching a session low of 4,199.67 dollars.

• At Wednesday’s close, gold gained 1.6%, marking its fourth consecutive daily advance and setting another record high amid continued safe-haven buying.

US Dollar

The US Dollar Index fell by 0.25% on Thursday, extending losses for the third straight session and hitting a nearly two-week low of 98.42 points, reflecting a continued decline in the American currency against both major and minor counterparts.

As is well known, a weaker dollar makes dollar-denominated gold more attractive to investors holding other currencies.

The dollar’s decline was driven by recent comments from the Federal Reserve chairman, as well as renewed trade tensions between the United States and China.

US officials on Wednesday criticized China’s significant expansion of export controls on rare earth metals, calling it a threat to global supply chains.

A Treasury Department official warned that the ongoing federal government shutdown, now in its second week, could cost the US economy up to 15 billion dollars per week in lost output.

US Interest Rates

• Jerome Powell said on Tuesday that the labor market remains stagnant, with both hiring and layoffs at low levels, and that the lack of official economic data due to the government shutdown has not prevented policymakers from assessing the economic outlook — at least for now.

• Philadelphia Fed President Anna Paulson stated that rising risks in the labor market strengthen the case for further US interest rate cuts.

• According to CME Group’s FedWatch Tool, markets currently price in a 96% probability of a 25-basis-point rate cut at the October meeting, with only a 4% chance of rates remaining unchanged.

• To reassess these probabilities, investors are closely monitoring comments from Federal Reserve officials, as the release of economic data remains delayed due to the government shutdown.

Gold Outlook

Nitesh Shah, Head of Commodities Strategy at WisdomTree Investments, said that renewed trade frictions are intensifying uncertainty across global supply chains — prompting investors to increasingly turn to gold.

Shah added that the rise in gold prices also reflects investor concerns about the credibility of US policy, noting that “there is a strong likelihood the metal will remain above the 4,200-dollar level.”

SPDR Fund

Gold holdings in the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, rose by 1.15 metric tons on Wednesday, marking the fourth consecutive daily increase and bringing total holdings to 1,022.60 metric tons — the highest since July 8, 2022.

The British pound rose in European trading on Thursday against a basket of global currencies, extending its gains for the second consecutive session against the US dollar and reaching its highest level in a week, supported by the continued decline of the American currency in the foreign exchange market.

Following strong UK wage data, doubts increased over the likelihood of the Bank of England cutting interest rates in November. To reassess these expectations, investors are now awaiting the release of the latest British GDP figures later today.

Price Overview

• The GBP/USD exchange rate rose by 0.3% to 1.3442 dollars — the highest since October 7 — from an opening level of 1.3401 dollars, after touching a low of 1.3392 dollars.

• The pound gained 0.6% against the dollar on Wednesday, marking its first daily increase in three sessions, supported by weakness in the US currency.

US Dollar

The US Dollar Index fell by 0.25% on Thursday, extending its losses for the third consecutive session and reaching a near two-week low of 98.42 points, reflecting continued declines in the greenback against both major and minor currencies.

The decline came as investors assessed the latest trade tensions between the United States and China, which, if they escalate, could spark a new trade war between the world’s two largest economies.

Senior US officials — including Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer — criticized China’s expanded controls on rare earth exports, calling them a threat to global supply chains.

China’s Ministry of Commerce defended its export restrictions, pointing to US measures against Chinese goods and companies, and described Washington’s criticism as hypocritical.

UK Interest Rates

• Data released earlier this week showed that average wages in the United Kingdom rose in August at the fastest pace in three months, adding inflationary pressure on the Bank of England’s monetary policymakers.

• Market pricing currently reflects around a 50% probability of a 25-basis-point rate cut by the Bank of England in November.

UK Economic Growth

To reassess those expectations, investors are awaiting key data from London later today on the UK’s GDP growth for August, along with additional figures on manufacturing output.

Pound Outlook

At Economies.com, we expect that if the upcoming data are stronger than market forecasts, the likelihood of a November rate cut will decline — leading to further gains in the British pound.

The Australian dollar fell in European trading on Thursday against a basket of global currencies, resuming the losses that had briefly paused against its US counterpart, heading back toward its two-month low as selling pressure returned following gloomy labor market data from Australia.

Data showed that the unemployment rate unexpectedly rose in September to its highest level in nearly four years, marking the latest sign of an economic slowdown and strengthening expectations for an Australian interest rate cut in November.

Price Overview

• The AUD/USD exchange rate fell by 0.5% to 0.6480, down from the opening level of 0.6512, after touching a session high of 0.6516.

• The Australian dollar had closed Wednesday’s session up by 0.4% against the US dollar, as part of a recovery from the two-month low of 0.6440 recorded the previous day.

Weak Data

Figures released by the Australian Bureau of Statistics on Thursday showed that net employment rose by 14,900 jobs in September, compared with a revised decline of 11,900 in August. The increase fell short of market expectations for a gain of 20,500 jobs.

The data also showed that the unemployment rate rose to 4.5% in September — the highest since November 2021 — exceeding market forecasts of 4.3%. The August figure was revised upward to 4.3% from the previous 4.2%.

Australian Interest Rates

• Following the release of the data, market pricing for a 25-basis-point rate cut by the Reserve Bank of Australia (RBA) in November rose from 40% to 72%.

• The RBA kept interest rates unchanged at 3.60% in September, after three cuts earlier this year, as it awaits more inflation data before making further policy decisions.

Opinions and Analysis

Harry Murphy Cruise, head of economic research at Oxford Economics Australia, said: “The Reserve Bank of Australia finds itself between a rock and a hard place. Inflation appears set to rise above the RBA’s latest forecasts, while the labor market is weaker than expected. We still believe a rate cut in November is justified.”

Tony Sycamore, analyst at IG, said: “The Reserve Bank of Australia had expected some cooling in the labor market. However, its latest projections did not anticipate the unemployment rate rising to around 4.5% — not this year, not next year, nor in 2027.” Sycamore added, “The RBA now finds itself in a very difficult position.”