The US dollar strengthened on Thursday (October 9th), continuing its gains this week, driven by a weaker euro due to the political crisis in Paris and a weaker yen amid a change in the ruling party leadership in Japan.

This week's markets were also overshadowed by the prolonged US government shutdown. The euro weakened following the resignation of French Prime Minister Sebastien Lecornu and his government earlier this week. However, President Emmanuel Macron still surprised markets with plans to appoint a new prime minister this week.

The single currency last traded 0.2% lower at $1.1609, after hitting its lowest level since late August on Wednesday. So far, the euro has fallen nearly 1% this week. Similarly, the yen came under pressure this week after Sanae Takaichi, a hard-line conservative, was elected head of Japan's Liberal Democratic Party. This put her on track to become the country's first female prime minister and fueled speculation of a revival in spending and loose monetary policy.

The Japanese currency was last down 0.27% at 153.07 per dollar, a level last seen in February. The yen has fallen more than 3.8% so far this week. "With no US data, the forex market is largely focused on French and Japanese politics," said Chris Turner, head of markets at ING.

"President Macron is likely to announce a new PM on Friday night. This has surprised markets that previously thought the next chapter in the French political saga would simply be another, divisive election," he said, adding that the news had helped the euro gain support.

The yen and euro's moves in turn supported the dollar, which strengthened to a two-month high, last up 0.20% at 99.038. Federal Reserve officials agreed at their latest policy meeting that risks to the US labor market had increased enough to justify a rate cut.

However, they remained wary of high inflation amid debate about how much borrowing costs were weighing on the economy, according to minutes of the September meeting shown on Wednesday. The prolonged US government shutdown could leave the Fed at a loss for direction at its October meeting due to delayed economic data. However, investors continue to expect a 25 basis point interest rate cut at the next meeting. (alg)

Source: Reuters.com