Dollar Weaker, Euro Gets Slight Support from France

The US currency started the day with a slight weakening, accompanied by a decline in short-term US Treasury bond yields to the lowest levels this year.. Published yesterday The Federal Reserve's "Beige Book" indicates that the central bank will likely have sufficient arguments to decide to cut interest rates by the end of the month – even if the release of official macroeconomic data remains suspended due to the ongoing federal government shutdown. The market assumes that the current government shutdown will last at least until November.

US-China trade relations

Trade relations between the United States and China are currently in the spotlight for investors, as tensions mount again ahead of a series of key deadlines. Presidents Donald Trump and Xi Jinping are scheduled to meet on the sidelines of the APEC summit in Korea, scheduled for October 29-31, just before November 10, the expiration date of the current 90-day trade truce.Failure to extend it would mean a return of US tariffs on Chinese goods to 145%, which would be a significant blow to international trade. A key unknown remains whether Beijing's announced export restrictions on rare earth elements are merely a negotiating ploy or a real threat to global supply chains, particularly in sectors such as semiconductors, electromobility, defense, and advanced industrial manufacturing.

This situation is causing growing concern. G7 countries, which are preparing a joint statement condemning China's actions. Meanwhile, U.S. Treasury Secretary Scott Bessent has attempted to portray China's restrictions as the result of overzealous behavior by the U.S. Commerce Department and has suggested the possibility of extending the tariff suspension beyond 90 days if Beijing softens its stance. However, a failure to reach a compromise could lead to increased volatility and weakening sentiment in global financial markets in the coming weeks.

Better sentiment around the euro

The currency market is showing improved sentiment around the euro, which gained momentum after positive news from France. Prime Minister Sébastien Lecornu is likely to survive two no-confidence votes in parliament today after securing the support of the Socialist Party in exchange for postponing the pension reform.For markets, this is a signal of stabilization in the short term. The yen may react to political events in the coming days. Investors will be closely watching whether Sanae Takaichi, leader of the Japanese Liberal Democratic Party, can reach an agreement with the Ishin party. This agreement would strengthen the minority coalition and increase Takaichi's chances of assuming the prime ministership on October 21st – which markets perceive as a factor weakening the yen. Today, the dollar may be sensitive to statements from two dovish Fed officials – Waller and Miran.

Source: OANDA TMS Brokers