The U.S. dollar advanced for a third time in four sessions on Tuesday, buoyed by persistent global instability and risk aversion. Investors viewed the greenback as the “cleanest dirty shirt,” strengthening not from domestic optimism but from weakness in the euro and yen. Political turmoil in France deepened as markets questioned President Emmanuel Macron’s authority, while concerns about Japan’s fiscal discipline following its leadership transition weighed on the yen. Despite the U.S. government shutdown entering its second week, the dollar index rose 0.48%, extending its post-September recovery.

Fed Commentary and Consumer Outlook Mixed

With official data frozen by the shutdown, focus turned to Federal Reserve speakers for guidance. Governor Stephen Miran warned that policy remains restrictive but noted earlier uncertainties have eased. In contrast, Minneapolis Fed’s Neel Kashkari cautioned that aggressive rate cuts could reignite inflation, while Vice Chair Philip Jefferson flagged the risk of job market stress if monetary support fades. Meanwhile, the New York Fed’s consumer survey revealed greater pessimism about employment and rising one-year inflation expectations at 3.4%, painting a mixed picture ahead of next week’s inflation releases.

Market Reaction and Asset Moves

Bond markets reflected cautious optimism. Treasury yields slipped slightly, led by strong demand at a three-year note auction, flattening the 2s–10s curve. U.S. equities weakened, with the S&P 500 down 0.41%, as investors consolidated near record highs. Commodities were volatile: WTI crude rose 0.31% but stayed near multi-month lows, copper climbed 1.16% on supply concerns, and gold gained 0.56% after futures briefly topped $4,000 per ounce, highlighting sustained safe-haven demand.

FX: Euro, Yen, and Pound Slide

Currency markets showed broad dollar strength. EUR/USD fell 0.44% as France’s political instability pressured the euro, while GBP/USD lost 0.40% amid soft U.K. data and cautious BoE expectations. The yen was the weakest performer, with USD/JPY surging 1.01% beyond 150 as fiscal concerns overshadowed the BOJ’s steady stance. Commodity currencies underperformed too—AUD/USD dropped 0.49% on fading risk appetite.

Outlook

Tuesday’s session underscored a fragile global backdrop where investors continue to favor the dollar as a relative safe haven. With the U.S. shutdown unresolved and key data delayed, focus now shifts to upcoming Fed communications and global political developments, which are likely to dictate near-term currency and risk sentiment.