The US Dollar held steady on Wednesday as investors remained cautious following a partial government shutdown, while the Yen slipped to near a two-week low ahead of an unpredictable national election this weekend.
Currency markets were also reacting to President Donald Trump’s nomination of Kevin Warsh as the next Federal Reserve chair, with the Dollar generally strengthening on expectations that Warsh is unlikely to advocate for rapid rate cuts.
Investors were also reassured, as Warsh’s appointment eased worries about the Fed’s independence following Trump’s repeated criticism of the central bank and Chair Jerome Powell.
The Euro edged up to $1.1834, while Sterling held steady at $1.3715 ahead of Thursday’s policy meetings at the European Central Bank and the Bank of England, with both central banks expected to keep rates unchanged.
The Dollar index, which tracks the greenback against six major currencies, stood at 97.33, close to Monday’s one-week high of 97.73.
The Dollar’s strength following Warsh’s nomination initially pressured precious metals, although they have since partially rebounded.
The index dropped 1% in January, following a 9.4% decline last year, driven by Fed rate cuts, narrowing interest rate gaps with other major currencies, and ongoing concerns over US fiscal deficits and political uncertainty, Reuters reports.
Late Tuesday, Trump signed a spending bill into law, ending a four-day partial US government shutdown, although key employment data scheduled for Friday will be delayed due to the closure.
Furthermore, the Yen slipped 0.3% to 156.26 per Dollar on Wednesday, its weakest level since 23rd January, when it had surged from 159.23 amid speculation that the New York Federal Reserve conducted rate checks.
The possibility of a joint US-Japan intervention to support the Yen has generally kept the currency from falling further, yet its outlook remains uncertain ahead of this weekend’s Japanese election.
In the election, Prime Minister Sanae Takaichi is seeking voter approval for increased spending, tax cuts, and a new security strategy expected to accelerate Japan’s defence buildup.
Earlier this week, Takaichi sparked a Yen selloff after a campaign speech praising the benefits of a weaker currency. Although she later softened her remarks, concerns remain that mixed signals from the prime minister could undermine efforts to support the fragile Yen.
Elsewhere, the Australian Dollar stood at $0.7028 following a sharp 1% gain in the previous session after the Reserve Bank of Australia raised interest rates, with markets now anticipating additional hikes this year. Meanwhile, the New Zealand Dollar dipped slightly to $0.604.