Dollar's Tug of War: Currency Battles and Economic Anxiety

The dollar reached a 9-1/2-month high against the yen, driven by concerns over Japan's fiscal policies and anticipation of U.S. economic data. While the dollar index remained flat, the possibility of a rate cut by the U.S. Federal Reserve looms. Analysts discuss potential consequences for the Japanese yen.

The dollar surged to a new 9-1/2-month peak against the yen before retreating, influenced by jitters over Japan's fiscal policy and pending U.S. economic reports that may forecast the Federal Reserve's next steps. Meanwhile, global stock markets wavered, notably in tech sectors, with the forex market response relatively subdued.

Currently sitting at 99.52, the dollar index marked no change after overcoming a four-day decline. U.S. economic indicators are keenly awaited post the extended government shutdown, with eyes set on Thursday's jobs report. Paul Mackel of HSBC highlighted the report's retrospective amplitude, capturing moments of Federal policy easing and Chair Powell's dovish stance on employment at Jackson Hole.

The yen showed recovery at 155.05, experiencing volatility with recent lows, while internal debate at the Bank of Japan about interest rates persists. The U.S. dollar outlook against yen benefits from Japan's potential fiscal expansion, despite rising foreign-exchange intervention risks and increasing government debt anxieties.

(With inputs from agencies.)