The US dollar rose against most major currencies during Monday’s trading as the government shutdown in the United States continued, with no sign of resolution in sight, prompting investors to move toward safe-haven assets such as the dollar and gold.

Reports over the weekend indicated that there was little progress toward ending the government shutdown in the United States, meaning further delays in the release of official economic data. It is likely that the foreign exchange market (forex) will witness another week of volatility, as the suspension of most economic data releases shifts the focus toward other macroeconomic developments.

In general, the longer the US government shutdown lasts, the greater the potential pressure on the US dollar. However, the greenback has so far shown remarkable resilience, which — according to Francesco Pesoli, currency analyst at ING Bank — confirms that markets have already raised the bar significantly for how bad the US economic news would need to be to prompt investors to increase short positions on the dollar.

The dollar index rose by 0.7% at 12:20 GMT to 98.3 points, recording a high of 98.5 points and a low of 97.9 points.

Local Stories May Lead G10 Currency Movements

Pesoli said: “Market pricing for Federal Reserve rate cuts in December remains slightly below 50 basis points (around 46 basis points this morning), which is close to the median projection in the Fed’s Dot Plot. The event likely to have the biggest impact on markets this week will be the release of the minutes of the September meeting of the Federal Reserve on Wednesday.”

He added: “We will look in the minutes for signs that the cautious tone expressed by Fed Chair Jerome Powell regarding further rate cuts is shared by most members of the Federal Open Market Committee (FOMC). The risks appear to be tilted slightly toward the dovish side, which could lead to a mild negative reaction in the dollar. Therefore, we expect the dollar to remain relatively stable in the coming days, though downside risks persist. However, domestic stories could be the main driver for other G10 currencies, as we are currently seeing in Japan.”

The Japanese Yen May Regain Advantage if the US Shutdown Persists

Pesoli said: “We do not see much room for further upside in the USD/JPY pair from current levels. A much weaker yen would increase concerns about living costs in Japan, and continued strength in the pair could create friction with Washington. Therefore, the yen may remain a preferred option if the US government shutdown continues for an extended period. We view the move above the 150.0 level in USD/JPY as temporary rather than the beginning of a sustained uptrend.”

A Busy Week of Central Bank Officials’ Speeches

The report noted that this week will be busy with speeches from central bank officials of the G10 economies. Jerome Powell will deliver an opening speech on Thursday at the Federal Reserve’s Community Banking Conference, alongside other members of the Federal Open Market Committee (FOMC), including Michelle Bowman.

Speeches will also be heard from the heads of the European Central Bank and the Bank of England (both today), Norges Bank on Tuesday, and the Reserve Bank of Australia on Friday, along with additional remarks from several Fed officials throughout the week.

Meanwhile, the Reserve Bank of New Zealand will announce its monetary policy decision on Wednesday, with expectations pointing to a 25-basis-point interest rate cut.

Gold prices rose in the European market on Monday, extending gains for the second consecutive session and continuing to break record highs after surpassing the $3,900 mark for the first time in history, on their way toward the psychological threshold of $4,000 per ounce.

This historic rally came amid strong safe-haven demand driven by political developments in Japan and France, the ongoing US government shutdown, and growing expectations of additional interest rate cuts by the Federal Reserve.

Price Overview

• Gold prices today: Gold rose by 1.5% to $3,945.15 — its highest level on record — from an opening price of $3,886.99, after touching an intraday low of $3,884.20.

• On Friday, gold gained 0.8%, resuming its advance after a brief pause the previous day, supported by weakness in the US dollar against a basket of major currencies.

• Last week, gold rose 3.4%, marking its seventh consecutive weekly gain — the longest winning streak since December 2024.

Strong Demand

Safe-haven demand surged on Monday amid key political developments in Japan and France over the weekend, as investors sought refuge in gold amid global political uncertainty.

In Japan, Sanae Takaichi’s victory in the Liberal Democratic Party leadership race raised expectations that the Bank of Japan’s ultra-loose monetary policy will remain in place longer, given her opposition to tightening measures.

In France, Prime Minister Sébastien Lecornu appointed Roland Lescure, a close ally of President Emmanuel Macron, as finance minister in the new government. The move came as opposition leaders threatened to topple the government if it failed to depart from Macron’s previous economic agenda.

In the United States, a senior White House official said on Sunday that the Trump administration would initiate mass layoffs of federal employees if negotiations with Democrats in Congress to end the partial government shutdown “produce no result.”

US Interest Rates

• Federal Reserve member Steven Miran reiterated on Friday the need for aggressive rate cuts, citing the impact of the Trump administration’s economic policies.

• Following weak US labor market data last week, CME FedWatch tool data showed that the probability of a 25-basis-point rate cut at the October meeting rose from 90% to 99%, while the odds of no change fell from 10% to 1%.

• To reassess these expectations, investors are closely watching the resumption of key US economic data releases and further comments from Federal Reserve officials.

Outlook

Tim Waterer, Chief Market Analyst at KCM Trade, said the yen’s weakness following Japan’s party election had reduced the number of safe-haven options available to investors, boosting gold’s appeal.

Waterer added that the ongoing US government shutdown “continues to cast a cloud of uncertainty over the economy and its potential impact on GDP.”

Giovanni Staunovo, commodities analyst at UBS, said data suggests the Federal Reserve could cut rates more than once this year.

He added: “As we expect further rate cuts, this should provide additional support for gold in the coming months, and we anticipate prices could surpass $4,000 per ounce before year-end.”

SPDR Gold Trust

Holdings of the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell by 0.86 metric tons on Friday — the second daily decline in a row — bringing total holdings down to 1,014.88 metric tons.

The euro fell in European trading on Monday against a basket of global currencies, moving into negative territory versus the US dollar and resuming losses that had paused on Friday. The decline came amid political developments in France, particularly following the appointment of a close ally of President Emmanuel Macron as finance minister in the new French government.

With inflationary pressures once again mounting on policymakers at the European Central Bank, market expectations for further rate cuts this year have diminished. Investors are now awaiting additional economic data and comments from ECB officials to reassess the outlook for monetary policy.

Price Overview

• EUR/USD today: The euro declined by 0.3% to $1.1706, from Friday’s closing level of $1.1741, after recording an intraday high of $1.1731.

• On Friday, the euro rose more than 0.2% against the dollar — its first gain in three sessions — supported by a temporary pause in the greenback’s rally across global forex markets.

Political Developments in France

French Prime Minister Sébastien Lecornu appointed Roland Lescure as finance minister over the weekend in a new government tasked with tackling the budget crisis and securing passage of the fiscal bill. The move was seen by analysts as an attempt to calm markets and build a bridge for negotiation among the country’s fragmented parliamentary blocs.

Lescure, a close ally of President Emmanuel Macron, is viewed as a continuation of Macron’s fiscal agenda — a perception that has weighed on sentiment toward the new government. Lawmakers have warned that the administration could face swift collapse if it fails to depart meaningfully from previous policies.

European Interest Rates

• Data released last week showed that eurozone inflation rose in September in line with expectations, underscoring renewed price pressures facing ECB policymakers.

• Following the release, market pricing for a 25-basis-point rate cut by the ECB in October stabilized below 10%.

• Traders have scaled back bets on further monetary easing, signaling that the ECB’s rate-cut cycle may have effectively ended for this year.

• Sources close to the ECB indicated that policymakers see no need for additional rate reductions to achieve the 2% inflation target, despite forecasts suggesting lower rates over the next two years.

• Unless the eurozone suffers a major new economic shock, borrowing costs are expected to remain at their current levels for the foreseeable future.

The Japanese yen fell broadly across Asian markets on Monday against a basket of major and minor currencies, deepening losses for the third consecutive session versus the US dollar. It hit a two-month low, trading below 150 yen per dollar for the first time since early August, as open selling positions on the Japanese currency accelerated following Sanae Takaichi’s victory in Japan’s ruling Liberal Democratic Party (LDP) leadership race.

Takaichi is poised to become Japan’s first female prime minister and is widely viewed as having the most expansionary fiscal and monetary agenda among the five candidates who competed to succeed outgoing hawkish premier Shigeru Ishiba.

A vocal critic of the Bank of Japan’s recent efforts to normalize and tighten monetary policy after years of unprecedented easing, Takaichi’s rise to power is expected to delay any near-term rate hikes, as she is likely to favor a cautious, gradual approach to preserve Japan’s fragile economic growth.

Price Overview

• USD/JPY today: The dollar rose 1.8% to ¥150.10 — its highest level since August 1 — from Friday’s close of ¥147.46, after hitting an intraday low of ¥149.00.

• On Friday, the yen fell 0.15% against the dollar, marking a second straight daily loss amid continued profit-taking from its two-week high of ¥146.59.

• For the week, the yen gained 1.35% against the dollar, its first weekly advance in three weeks and the biggest since May, supported by safe-haven demand.

Takaichi’s Victory

Following weekend elections, Sanae Takaichi won the leadership of Japan’s ruling Liberal Democratic Party, becoming the first woman to hold the post since the party’s founding and paving the way for her to succeed Shigeru Ishiba as the next prime minister.

Her victory followed an intense internal contest focused on strengthening Japan’s defense capabilities, promoting industrial innovation, and maintaining economic stability amid mounting global pressures.

Analysts view her win as a significant political shift, given her conservative stance and past criticism of the BOJ’s tightening plans — suggesting a more cautious approach to rate hikes in the near term.

Speaking at a press conference after her victory, Takaichi said the government and central bank must work closely to achieve demand-driven inflation supported by higher wages and stronger corporate profits.

Market Overview

• The yen weakened broadly in the forex market and is on track for its biggest one-day loss against the dollar since May.

• Japan’s 30-year government bond yield climbed 13 basis points to 3.28%, just below last month’s record high of 3.285% reached after Ishiba’s resignation.

• Japanese stocks rallied sharply, with the Nikkei index surpassing 47,000 points for the first time in history.

Analyst Commentary

• Mahjabeen Zaman, head of FX research at ANZ in Sydney, said Takaichi’s victory “will likely lead to some weakness in the yen.”

• She added: “There’s a lot of near-term political and fiscal uncertainty, and the BOJ may exercise caution even as data supports a more hawkish stance.”

• Chris Weston, head of research at Pepperstone in Melbourne, said: “We’re in the eye of the storm,” as traders look for clues on how aggressively Takaichi will pursue fiscal stimulus.

• Weston added: “If markets sense she’ll follow a reflationary path similar to Abe’s, that could keep bond buyers sidelined — she’ll need to tread carefully if she goes down that route.”

Interest Rate Outlook

• Market pricing for a 25-basis-point rate hike by the Bank of Japan in October fell sharply from 45% to 10%.

• Yen swap markets on Monday reflected a 41% probability of a rate increase by December, down from 68% on Friday.