The US dollar edged closer to a two-month peak on Wednesday, buoyed by fiscal and economic uncertainties from Asia Pacific to Europe. Concerns over overseas markets have pushed Group-of-10 currencies lower, giving the greenback a fresh lift despite ongoing domestic challenges.
The Bloomberg Dollar Spot Index rose 0.2% before trimming gains, bringing it near its highest level since early August. Traders said the move was fueled by hedge funds ramping up bearish bets on the euro and yen, combined with long-dollar demand from institutional investors.
After hitting its lowest point since 2022 last month, the dollar has bounced back in recent days. Negative developments abroad are now outweighing the impact of the US government shutdown. Political turmoil in France has weighed on the euro, while the yen slumped amid speculation that Japan’s likely new leader may pursue aggressive fiscal spending and slow 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 also gained support from New Zealand’s central bank, which delivered a larger-than-expected rate cut and signaled more easing. This pushed the New Zealand dollar to a six-month low, indirectly benefiting the dollar.
Options data point to growing conviction for the US currency. One-year risk reversals, which track demand for bullish versus bearish bets, show traders are the most optimistic on the dollar since April, marking a sharp turnaround after months of largely bearish positioning.
The Bloomberg dollar gauge has gained nearly 1% since late September, trimming its year-to-date decline to about 7.5%. The dollar had struggled through most of 2025, pressured by Federal Reserve easing, waning US exceptionalism, and the rising appeal of gold as a safe-haven asset.
The ongoing US government shutdown is expected to limit any sustained gains. Historical precedent shows that during the shutdowns of 2013, early 2018, and late 2018 into 2019, the dollar gauge fell both during the impasse and immediately afterward.
“There doesn’t seem to be much of a case for the dollar to be bought against other currencies,” said Rikiya Takebe, senior strategist at Okasan Securities in Tokyo. “The US is leaning toward rate cuts, and President Trump is fundamentally not a fan of a strong dollar.”
Market pricing reflects expectations for four Fed rate cuts totaling one percentage point by September 2026, keeping the dollar under cautious watch as investors weigh domestic policies against global instability.
