The US dollar has eased from its 10-month high but remains on track to record its biggest quarterly gain in a year. The dollar index, which measures the currency against six others, fell 0.4% to 105.75, but is set to end the quarter with a 2.8% increase. This marks the 11th consecutive weekly rally for the dollar, the longest in nine years. Factors contributing to the dollar’s positive performance include strong US economic resilience, a rise in oil prices, and falling US Treasury yields. The Federal Reserve is closely monitoring data, such as key US personal consumption data, to determine whether another rate increase is necessary this year.

The Japanese yen, meanwhile, is under pressure and trading near 150 per dollar, a level that could trigger intervention by authorities. The yen last traded at 148.925 to the dollar, down 0.25% on the day. While currency intervention may have limited impact, some analysts believe the Japanese government could demonstrate its commitment to tackling import price increases resulting from a weaker yen. In other currency news, the euro rose for a second consecutive day, while sterling edged higher following data that showed the UK economy performed better than previously estimated since the start of the COVID-19 pandemic.

However, there is growing uncertainty due to a potential partial government shutdown, which could affect the release of economic data. The lack of data creates ambiguity for the Federal Reserve as it determines the need for further monetary policy changes. Central banks, including the Fed, heavily rely on data to inform their decisions. The market is closely watching for any signs of a more dovish tone from the Fed, but analysts do not anticipate any rate cuts until late 2024. This combination of factors creates a “vacuum of uncertainty” in asset classes, prompting some investors to move to the sidelines until more clarity emerges.

Overall, the dollar’s strong quarterly performance, supported by various economic factors, has put pressure on the yen and other major currencies. As the US economy shows resilience, and with uncertainty stemming from a potential government shutdown and limited data releases, the market is closely watching for further signals from the Federal Reserve regarding future rate increases.

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