The US dollar declined on Friday following President Donald Trump’s renewed threats to escalate tariffs against China, sparking fresh concerns over the trajectory of the trade war and its impact on the American economy. Trump also hinted at cancelling a scheduled meeting with Chinese President Xi Jinping and criticized China’s expanded rare earth export controls, accusing Beijing of attempting to “hold the global economy hostage.”
The dollar index fell 0.4% to 98.99, though it remains on track for a weekly gain of 1.66%—its strongest since September 2024—buoyed earlier in the week by weakness in the euro and yen due to regional fiscal concerns.
The euro and yen rose against the greenback in response to Trump’s comments, while commodity-linked currencies such as the Australian dollar retreated. Market analysts warned that the trade rhetoric could deepen economic uncertainty. “It creates a lot of doubt,” said Juan Perez of Monex USA.
Meanwhile, traders are closely watching for updates on the reopening of the US federal government and the release of key inflation data. The Bureau of Labor Statistics confirmed that September’s consumer inflation report will be published on October 24 to help determine the 2026 Social Security cost-of-living adjustment.
Federal Reserve officials have voiced concern over inflation risks, with markets pricing in a 97% probability of a 25 basis point rate cut in October and a 92% chance of another cut in December, according to CME Group’s FedWatch Tool.
Yen Under Pressure Amid Japanese Political Shifts
The Japanese yen weakened this week amid speculation that the Bank of Japan may hold off on further rate hikes following Sanae Takaichi’s unexpected rise to lead the ruling party. Finance Minister Katsunobu Kato expressed concern over excessive currency volatility, marking the first verbal intervention from the ministry in recent months.
Despite a brief rebound to 151.73 yen per dollar, the yen remains down for the week, having fallen from 147.44 last Friday. Takaichi, poised to become prime minister, emphasized the need for BOJ policy to align with government goals, though her path to leadership faces delays after the Komeito party withdrew support.
Euro Falters Amid French Political Uncertainty
The euro rose 0.38% to $1.1607 on Friday but is set for its steepest weekly decline since July, down 1.15%, as political instability in France weighs on investor sentiment. President Emmanuel Macron convened party leaders ahead of a deadline to name a new prime minister, while the central bank warned that political disorder is undermining economic growth.
Concerns over France’s budgetary challenges and Germany’s slowing economy have heightened market sensitivity. “The data from Germany’s not good,” noted Rabobank’s Jane Foley, “making the euro more susceptible to wobbles.”
Canadian Dollar Gains on Strong Jobs Data
The Canadian dollar strengthened after surprising September employment figures showed a net gain of 60,400 jobs. While markets still anticipate rate cuts, the upbeat data tempered expectations. The loonie rose 0.15% to C$1.40 per US dollar.
Bitcoin Slides
Bitcoin fell 2.98% to $117,568, continuing its volatile trajectory amid broader market uncertainty.
