Dollar Revival Extended
October 8, 2025
Driven by sluggish growth and political uncertainties affecting other economies, the dollar climbed overnight by a further 0.6% against the Japanese yen and Korean won, 0.4% relative to the New Zealand dollar, 0.3% vis-a-vis the euro and 0.2% versus the Swiss franc, Turkish lira and British pound. The intra-day high in the weighted DXY dollar index, 98.99, was as high as it’s been in two months.
Two other upward forces on the U.S. currency have been the absence of U.S. data (no news is good news) and the relentless pressure from the Trump administration on domestic and foreign adversaries. Always the deal maker, a central element common to deals made with President Trump is that it ain’t over ever. There is a report that new unspecified by significant concessions are being demanded by the United States from the European Union in follow-up the summer trade deal that resulted in a 10 percentage point tariff reduction to 15%. American top university administrations are being asked for more and more government control of their operations. They are acceding to such demands in many cases in hopes of retaining grants yet still awaiting money flows that either have followed only in part or not at all. Time-wasting domestic law-suits have not stopped the radical changes being implemented on numerous domestic policy fronts including a dogged pursuit of every institution, state, and person that has publicly lined up on the president’s side in their speech and actions.
Image is important in deciding financial market winners and losers. MAGA seems to be winning, and it’s natural for the dollar to reflect that perception…. unless at some point a signal from the president or other high officials goes out protesting that the U.S. currency has become too overvalued and a threat to the plans to greatly reduce or end the U.S. trade deficit.
In stock market action this Wednesday, U.S. stock futures are modestly firmer. Share prices have risen 0.6-0.9% in major European markets and closed up 0.5% in China but down 0.5% in Japan, Hong Kong and Taiwan. Ten-year sovereign debt yields have declined by six basis points in France and Italy, four bps in Germany and Spain, three bps in the United States and two bps in Great Britain.
The yen continued to reel in the wake of the Japanese leadership vote won by a disciple of former Prime Minister Abe, who favors fiscal and monetary policy stimulus. Paradoxically, the yen’s response has been too sharp for a central bank whose leadership had been looking for an opportunity to extend interest rate normalization. A former high official of the Bank of Japan warns that continuing yen depreciation might persuade monetary authorities to either raise interest rates or intervene in the market place in order to counter selling pressure on the currency. Bucking the overnight downtrend of other 10-year sovereign debt yields, the JGB yield edged a basis point higher.
Minutes from last month’s Federal Open Market review of U.S. monetary policy get published later today and are eagerly awaited. Unlike U.S. economic data, these scheduled events are not affected by the U.S. federal government shutdown.
Earlier today, central banks in Thailand, New Zealand, and Iceland reported results of their latest monetary policy reviews. Only the Reserve Bank of New Zealand’s decision involved an interest rate change, but such exceeded analyst expectations. The Official Cash Rate was cut by 50 basis points, twice the street’s forecast. At 2.50%, the new OCR level drops to its lowest since August 2022 and a full three percentage points below the peak of 5.5% maintained from May 2023 until an initial cut in August 2024. A released statement explaining today’s unanimous decision talks about persistent weak growth and asserts that with spare capacity in the economy, inflation is expected to return to around the 2 percent target mid-point over the first half of 2026.” The CPI in the second quarter had been 2.7% higher than a year earlier… The Committee remains open to further reductions in the OCR.”
In Thailand, where consumer price inflation has been negative for the last six reported months, analysts were predicting a 25-basis point interest rate cut at today’s monetary policy review, and two of the seven policy deciders did in fact vote for such a move. But the rest of the Bank of Thailand‘s monetary policy committee instead opted for keeping the rate unchanged at 1.5%. Four 25-basis point reductions had previously been done since October 2024. “Deflationary risks remain low, and medium-term inflation expectations of the private sector are well-anchored within the target range.”
The Bank of Iceland’s 7-day term deposit interest rate was kept steady at 7.5%, its lowest level since May 2023. The most recent cut of 25 basis points happened in May, and the rate peaked between August 2022 and October 2024 at 9.25%. A released statement mentions above-target expected inflation, the current CPI inflation of 4.1%, sizable wage growth, and the economy’s resilience as reasons to retain a tight policy stance.
Today’s Japanese data release menu included a slightly larger-than-forecast current account surplus of JPY 3.776 trillion in August (most in six months); slower-than-expected on-year changes in nominal average cash earnings (1.5% and -1.4% when adjusted for inflation); and an eight-month high economy watchers index, which is a gauge of sentiment among service sector workers.
Like yesterday’s German report on factory orders, today’s release of industrial production in Europe’s largest economy was a real clunker. Output plunged 4.3% on month, its worst result in 41 months, and was 3.9% lower than in August 2024.
Several economies released September consumer price data. Lithuania‘s inflation rate of 4.0% matched August’s 4-month high but was well down from 24.1% in September 2022. Latvia‘s 4.1% inflation likewise matched August’s high, and CPI inflation in Hungary stood at 4.3% for a third consecutive month. In Sweden, by contrast, inflation has been very low and in fact slowed more than predicted to just 0.9% last month. That was down from 12.3% in December 2022 and associated with a 3.1% core pace. In Taiwan, CPI inflation of just 1.25% in September constituted a 54-month low. Egyptian inflation slid 0.3 percentage point to a 42-month low but, compared to inflation in most countries, remained on the hefty side at 11.7%.
U.S. mortgage applications last week sank 4.7% on top of a 12.7% plunge in the previous week.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: Bank of Thailand, Central Bank of Iceland, German industrial production, Japanese current account, Reserve Bank of New Zealand
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