Dollar Finds a Floor Amid Global Political Jitters.

• Dollar steadies: Soft US jobs data raised Fed easing bets, but global politics – France’s budget vote and Japan’s leadership change – limited the sell-off.

• USD/JPY resilient: Political risk lifted the pair above 148, though upside likely capped below 150; downside to 145 delayed.

• Upcoming US risks: NFP revisions and CPI could sway dollar sentiment; markets now price a 150bp Fed easing cycle by mid-2025.

• Euro pressured: French politics weigh on EUR/USD, but broader eurozone risks look contained with ECB support mechanisms in place.

• Sterling steady: Political reshuffle had little impact; focus remains on Gilts and next week’s BoE meeting.

USD: Overseas politics lends a helping hand
Friday’s August payrolls once again fell short of expectations. The softer figures were enough to spark market chatter of whether the Federal Reserve could revive its easing cycle with a 50bp cut – much like last September. The dollar initially dropped 0.5% but has since clawed back much of the losses. What limited the downside were developments abroad. In France, today’s confidence vote on the 2026 budget looks likely to topple the government. Meanwhile, Japan was thrown into fresh uncertainty with the resignation of Prime Minister Shigeru Ishiba, raising concerns over looser fiscal policy.

Japan’s ruling LDP will now vote on a new leader on 4 October. If a candidate such as Sanae Takaichi takes charge on a pro-spending agenda, markets could see extended fiscal and monetary divergence. FX markets are paying closer attention to fiscal risks, with USD/JPY jumping above 148 on the news. That said, the pair may struggle to break above the 148.50–149.00 zone and looks capped below 150. For now, politics may delay the decline toward 145 previously projected for late September.

This week brings plenty of US-centric catalysts. Tomorrow’s benchmark revision to nonfarm payrolls could show a reduction of 500k–800k jobs, with the Fed’s Waller recently hinting at a drop of around 720k. Such a revision may weigh on the dollar but likely only modestly. Market expectations are building for a 150bp easing cycle by summer 2025, which would lower rates to 3.00%.

Thursday’s CPI release also matters, with risks skewed toward a hotter 0.4% m/m print (vs. 0.3% consensus). That could temporarily boost the dollar and pressure Treasuries ahead of $119bn in fresh issuance. On top of that, the 15 September corporate tax deadline could tighten dollar liquidity, historically a seasonal support. With SOFR already pushing the upper bound, DXY may have another test of 98.50 this week before the FOMC drives sentiment next Wednesday.

EUR: France’s budget showdown keeps euro under pressure
Friday’s dollar weakness briefly lifted EUR/USD, but politics is back in focus. Prime Minister François Bayrou faces a confidence vote on his 2026 budget today, where opposition parties are more interested in ousting the government than fixing the deficit above 5% of GDP. Possible outcomes include Bayrou staying on under Macron, a technocrat replacement, or early elections. Market risk lies in French bond spreads widening beyond 80bp against Germany, while Fitch’s AA- rating review this Friday looms. Still, this appears a French-specific issue. With Italy and Spain enjoying rating upgrades and the ECB’s TPI as a backstop, broader eurozone contagion looks unlikely. Expect EUR/USD volatility inside a 1.1650–1.1750 band this week, with Thursday’s ECB meeting likely a non-event.

GBP: Gilt fragility overshadows Westminster reshuffle
Sterling is holding firm despite Prime Minister Keir Starmer’s reshuffle, which left Chancellor Rachel Reeves untouched – preserving policy credibility. While softer US data helped calm global bond markets, Gilts remain the weak spot for GBP. With no UK data or major BoE commentary due this week, EUR/GBP looks set to trade in a narrow 0.8650–0.8700 range. Next week’s BoE meeting and any updates on quantitative tightening will carry far more weight.