Market News

(Bloomberg) -- The dollar approached a two-month high on Wednesday as fiscal and economic concerns from Asia to Europe weighed on the currencies of its Group-of-10 peers.

The Bloomberg Dollar Spot Index advanced as much as 0.3%, before paring gains, to come within striking distance of its highest since early August. The move was helped by hedge funds buying more bearish euro and yen option bets, and real money demand for long-dollar exposure, according to traders in Asia and Europe.

After tumbling to the lowest since 2022 in September, the dollar has strengthened in recent days as a slew of worries abroad outweigh any negative impact from the US government shutdown. The euro has been hit by France’s political turmoil while the yen has slumped on speculation that Japan’s likely new leader may favor more fiscal expansion and a slower pace of interest-rate hikes.

“Considering mounting concerns on fiscal sustainability in Japan and France, the market is now re-assessing their views on the US macro outlook,” said Eugenia Fabon Victorino, head of Asia strategy at Skandinaviska Enskilda Banken. “Despite the ongoing US government shutdown, traders are ironically looking at the US as the least ugly situation.”

The greenback got an additional boost Wednesday as the New Zealand dollar tumbled to a six-month low after its central bank delivered a larger-than-usual interest-rate cut and signaled a willingness to ease further.

Options suggest conviction is shifting in favor of the US currency. One-year risk reversals, which measure the difference in demand for bullish versus bearish bets, show traders are the most optimistic on the dollar since April, marking a sharp turnaround after months of mostly bearish positioning.

The Bloomberg dollar gauge has strengthened almost 1% since end-September, paring its year-to-date decline to about 7.6%. The currency has been on the backfoot for most of 2025 due to Federal Reserve easing, the waning pull of US exceptionalism and the growing appeal of gold as a haven play.

Dollar Doubters

Many market participants say those factors remain in play and are skeptical the dollar bounce will last. The US currency’s cloudy outlook has helped fuel a run on gold, which recently topped $4,000 an ounce for the first time ever.

Billionaire Ray Dalio said that gold is “certainly” more of a haven than the greenback, while Citadel’s Ken Griffin said that it is concerning that investors are starting to view gold as a safer asset than the dollar.

“There doesn’t seem to be much of a case for the dollar to be bought against other currencies,” said Rikiya Takebe, a senior strategist at Okasan Securities Co. in Tokyo. “In addition to the US leaning toward rate cuts, President Trump is fundamentally not a fan of a strong dollar.”

Gold’s record climb came amid the US government shutdown, which is expected to be negative for the US dollar. In the three most recent episodes — in 2013, early 2018 and late 2018 into 2019 — the Bloomberg gauge fell both during the impasse and in the immediate aftermath.

At the same time, overnight-indexed swaps have fully priced in four Fed interest-rate cuts totaling one percentage point by September 2026.

--With assistance from Vassilis Karamanis and Anya Andrianova.

(Updates markets, adds comments on gold starting in eighth paragraph)