The U.S. dollar continued to weaken on Friday and is on track for its biggest weekly decline in almost three months, as mounting fears over a government shutdown, renewed U.S.–China trade tensions, and signs of slowing economic momentum fueled expectations of further Federal Reserve rate cuts.
Analysts describe current market positioning as a “devaluation trade,” with investors shifting toward alternative stores of value such as gold and cryptocurrencies, adding broad pressure on the greenback.
Comments from Bank of Japan Governor Kazuo Ueda — who signaled readiness to raise rates if inflation and growth prospects strengthen — provided some support to the yen. However, political uncertainty remains elevated as Japan’s ruling party delayed its leadership vote to October 21 amid internal disagreements.
At the Fed, policymakers including Christopher Waller and Stephen Miran voiced support for additional rate cuts given mixed labor data and weakening household spending.
Trade anxiety also resurfaced after China rejected U.S. calls to lift rare-earth export controls, accusing Washington of stoking market panic — another factor undermining confidence in the dollar.