The US dollar is heading on Friday to end its worst week since late July, amid rising uncertainty driven by the US government shutdown, while the Japanese yen retreated from its highs this week as investors await the Bank of Japan’s next move ahead of the ruling party’s leadership election at the weekend.

The dollar index, which measures the US currency against a basket of major peers, slipped 0.1% to 97.78. The euro rose 0.2% to 1.17355 dollars, while the British pound gained 0.2% to 1.346 dollars.

Michael Brown, head of research at Pepperstone, said: “We now have a US government shutdown that has no direct practical impact, but it means market participants lack the usual economic data such as today’s nonfarm payrolls report, which explains the weakness and quiet tone in trading.”

He added that the upcoming ISM data from the US “is unlikely to be market-moving.”

As for the yen, it slipped 0.1% to 147.375 per dollar after earlier falling 0.4%, though it remains on track for a weekly gain of about 1.4%, its largest since mid-May.

This weakness followed cautious remarks from Bank of Japan Governor Kazuo Ueda about the global economy, reducing expectations of an imminent rate hike. Investors are also awaiting Saturday’s Liberal Democratic Party leadership election, which will decide the country’s next prime minister. Brown noted: “Markets were somewhat disappointed that Ueda did not show a clear inclination toward an October hike as some of his colleagues have recently, and this weighed on the yen.”

Meanwhile, the Bank of Japan’s Tankan survey on Wednesday showed an improvement in sentiment among major manufacturers for a second consecutive quarter. Deputy Governor Shinichi Uchida also pointed Thursday to improving business conditions and higher corporate profits despite pressure from US tariffs.

But Ueda reiterated in his Friday speech that global factors—particularly the performance of the US economy—will shape the outlook for wages and prices in Japan. Goldman Sachs analysts wrote in a note: “Ueda’s comments support our view that the probability of an October hike is very low.”

On the political front, Japan heads to elections on Saturday that will influence the budget and central bank policies. Among the leading contenders, long-serving politician Sanae Takaichi, who favors accommodative policy, could add to uncertainty in the bond market, while Agriculture Minister Shinjirō Koizumi and Chief Cabinet Secretary Yoshimasa Hayashi are seen as less likely to bring major shifts.

In the US, a Chicago Fed report—based on public and private data—showed the unemployment rate held steady at 4.3% in September, unchanged from August, suggesting a sharp rise in joblessness has yet to begin. But details of the report, along with other data, reflected labor market weakness, as Wednesday’s ADP report showed a 32,000-job decline in the private sector in September, reinforcing expectations for two more Fed rate cuts this year.

Traders now see a 25-basis-point cut in October as virtually certain, while pricing in an 89% chance of another cut in December, according to CME’s FedWatch tool.

Dallas Fed President Lorie Logan said Thursday that last month’s rate cut was an appropriate step to prevent severe labor market deterioration, but added that the slowdown remains gradual and expressed reluctance toward further easing at this stage.

Elsewhere, investors are awaiting speeches from several top central bankers at a farewell symposium for outgoing Dutch central bank chief Klaas Knot, including ECB President Christine Lagarde and Bank of England Governor Andrew Bailey.

Gold prices rose in the European market on Friday, resuming gains that had paused temporarily yesterday amid correction and profit-taking, approaching once again their all-time highs and potentially surpassing the $3,900 per ounce mark for the first time in history, supported by the decline of the US dollar against a basket of global currencies.

In addition, strong expectations remain that the Federal Reserve will cut interest rates twice before the end of this year. To reprice those expectations, markets throughout the day await the release of the September US jobs report.

Price Overview

• Gold prices today: gold rose by 0.35% to (3,865.27$), from the opening level at (3,856.40$), with a low recorded at (3,838.22$).

• At Thursday’s settlement, gold prices fell by 0.25%, marking their first loss in six days, due to correction and profit-taking after earlier hitting an all-time high at 3,896.91$ per ounce.

Weekly Trading

Over the course of this week, which officially concludes at today’s settlement, gold prices are so far up about 2.9%, on the verge of a seventh consecutive weekly gain, the longest winning streak since late December 2024.

US Dollar

The dollar index fell on Friday by 0.15%, resuming losses that had temporarily halted in the previous session, reflecting continued weakness of the US currency against a basket of major and minor currencies.

This decline comes amid a string of weak US labor market data, which strongly reinforces expectations of two US interest rate cuts this year, alongside ongoing concerns linked to the government shutdown.

US Interest Rates

• Data on Wednesday showed that US private sector companies unexpectedly lost jobs in September, marking a second monthly loss in a row.

• The job openings report on Tuesday pointed to a slight increase in openings in August, alongside weaker hiring momentum, signaling a slowdown in labor market strength.

• Lorie Logan, President of the Dallas Federal Reserve Bank, stated that last month’s rate cut was an appropriate precautionary move against severe labor market deterioration, but emphasized the need for caution.

• Traders boosted their bets on two additional Fed rate cuts this year.

• Following the above data and according to CME’s FedWatch tool: pricing of a 25-basis-point rate cut in October rose from 90% to 99%, while pricing for rates to remain unchanged fell from 10% to 1%.

US Jobs

To reprice the above expectations, markets await throughout the day the release of the US monthly jobs report, which will include key data on the labor market, especially the number of non-farm jobs added in September, along with unemployment and average hourly earnings.

The prolonged US government shutdown, now in its third day as of Friday, has already delayed the release of key economic data such as weekly jobless claims, and may also delay today’s jobs report.

Without a specified time during the US trading session, the non-farm payrolls data may show that the US economy added 52,000 new jobs in September, up from 22,000 in August, with unemployment steady around 4.3% and average hourly earnings expected to rise by 0.3%, the same as the previous reading.

Outlook for Gold Performance

UBS analyst Giovanni Staunovo said: “Data suggests the Federal Reserve may cut interest rates more than once this year.”

He added: “While we expect further cuts, this should support gold prices more in the coming months, and we anticipate the yellow metal will surpass the $4,000 per ounce barrier before year-end.”

SPDR Fund

Gold holdings at the SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, fell yesterday by 3.15 metric tons, bringing the total to 1,015.74 metric tons, down from 1,018.89 metric tons, which was the highest level since 13 July 2022.

The euro rose in the European market on Friday against a basket of global currencies, resuming gains that had paused for two days against the US dollar, moving into positive territory and on the verge of a weekly gain, supported by the weak performance of the US currency ahead of the release of US monthly jobs data.

Data released this week indicated renewed inflationary pressures on European Central Bank policymakers, significantly reducing the likelihood of an interest rate cut in Europe during the remainder of this year.

Price Overview

• Euro exchange rate today: the euro rose against the dollar by 0.2% to (1.1734$), from today’s opening level at (1.1715$), with a low recorded at (1.1712$).

• The euro ended Thursday’s trading down by about 0.2% against the dollar, its second daily loss in a row, amid ongoing correction from a nearly two-week high at 1.1779$.

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

Weekly Trading

Over the course of this week, which officially concludes with today’s settlement, the single European currency "euro" is so far up by about 0.35% against the US dollar, on the verge of its fourth weekly gain in the last five weeks.

US Dollar

The dollar index fell on Friday by 0.15%, resuming losses that had temporarily halted in the previous session, reflecting weakness in the US currency against a basket of major and minor currencies.

This decline comes ahead of the release of US monthly jobs data, which will provide further evidence on whether the Federal Reserve will continue easing monetary policy and cutting interest rates during the remainder of this year.

European Interest Rates

• Data on Wednesday showed inflation in Europe rising in line with expectations in September, highlighting renewed inflationary pressures on European Central Bank policymakers.

• Following this data, money market pricing of a potential 25-basis-point interest rate cut by the European Central Bank in October is currently stable at less than 10%.

• Traders trimmed their bets on ECB monetary easing, indicating the end of this year’s rate-cutting cycle.

• Sources: policymakers at the European Central Bank believe no further rate cuts are needed to achieve 2% inflation, despite new economic forecasts pointing to lower rates over the next two years.

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

• Traders trimmed their bets on ECB monetary easing, indicating the end of this year’s rate-cutting cycle.

The Japanese yen declined in the Asian market on Friday against a basket of major and minor currencies, extending its losses for the second consecutive day against the US dollar, moving away from a two-week high, amid continued correction and profit-taking, in addition to the ongoing rise of the US currency ahead of the release of US monthly jobs data.

Less aggressive comments from Bank of Japan Governor Kazuo Ueda reduced the likelihood of a Japanese interest rate hike in October, pending the release of more key data on developments in the world’s fourth-largest economy.

Price Overview

• Yen exchange rate today: the dollar rose against the yen by 0.35% to (147.77¥), from today’s opening level at (147.26¥), with a low recorded at (147.09¥).

• The yen ended Thursday’s trading down by 0.15% against the dollar, its first loss in five days, due to correction and profit-taking from a two-week high at 146.59 yen.

US Dollar

The dollar index rose on Friday by 0.15%, extending gains for the second straight session, reflecting the continued rise of the US currency against a basket of global currencies.

This rise comes ahead of the release of the US monthly jobs data, which will provide further evidence regarding whether the Federal Reserve will continue easing monetary policy and cutting interest rates during the remainder of this year.

Kazuo Ueda

Bank of Japan Governor Kazuo Ueda said in a speech before business leaders in Osaka, western Japan, on Friday: if uncertainty over external economies and trade policies persists, companies may focus more on cutting costs, which could weaken efforts to reverse price increases in wages.

Ueda added: the future path of the US economy and the course of monetary policy could significantly affect Japan’s economy and prices. He explained: therefore, we will continue to monitor the situation closely.

Opinions and Analysis

• Shotaro Mori, chief economist at SBI Shinsei Bank, said: there was no clear change in the Bank of Japan’s statement indicating that it was trying to pave the way for a rate hike in October.

• Mori added: if the impact of tariffs increases going forward, the key will be to study precise data on Japan’s economic growth and corporate earnings in the third quarter.

• Mori explained: a rate hike by the Bank of Japan in December is now more likely than in October.

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

• In order to reprice those expectations, investors are awaiting the release of more data on inflation, unemployment, and wages in Japan.