Dollar clings to life support as external politics stem the Greenback slide

The dollar has stumbled, but it hasn’t broken any meaningful ranges. It lies on the gurney, machines humming, the EKG still flickering, while the room debates whether Powell dares to replay last September’s script with a jumbo 50bp cut. Friday’s payrolls were another body blow—Soft enough to spark talk of aggressive easing, but apparently that in itself is not nearly catastrophic enough to pull the plug on the greenback in Asia. The dollar sold off hard on Friday, yet Monday’s pause was telling: instead of spiralling lower, it drew temporary oxygen from Paris and Tokyo. The greenback isn’t alive and thriving—it’s still on life support, but its rivals are tangled in their own politics.

France is once again the theatre of chaos, running through prime ministers as if they were expendable extras. Bayrou now faces a confidence vote on his 2026 budget, one that almost everyone expects him to lose. The opposition doesn’t have a credible plan to tackle a deficit north of 5% of GDP; instead, they’re more interested in toppling the government than offering solutions. That leaves Macron in a bind: keep Bayrou limping along, parachute in a technocrat, or call early elections. None of these choices looks particularly market-friendly, and with Fitch’s downgrade review hanging over Paris, French spreads over Bunds could easily lurch wider. But this doesn’t feel like a eurozone wildfire. Italy and Spain are enjoying upgrades, while the ECB still has its backstop tools. For now, the market is treating it as a French problem rather than a European contagion story. Ultimately, that could provide enough ballast to test 1.1750 and set sights on 1.1800 by mid-week

Japan’s drama is a different flavour. Ishiba’s resignation has forced the LDP into a leadership scramble, with a new figurehead to be chosen by October 4. The market’s eye is on Sanae Takaichi, whose platform leans toward fiscal expansion and a slower retreat from easy money—two words that make JGB traders twitch. USD/JPY gapped above 148. The FX market had already pencilled in political turbulence, and the yen’s weakness looks capped at 149.00 for now, and upticks should be faded. Anything higher in dollar-yen still looks like a bridge too far unless Tokyo’s policy mix veers into outright recklessness. For now, the much-anticipated move toward 145 this month has been kicked down the road, with politics serving as the sandbag holding back yen strength. But it’s still the direction of travel.

Stateside, the calendar is loaded like a pressure cooker. Benchmark payroll revisions arrive tomorrow, the ghost in the cupboard that could lop anywhere from half a million to 800,000 jobs off the books. Waller flagged a -720k figure in his remarks last week, setting expectations for a grim adjustment. Such a revision would be another bruise for the dollar, but it’s unlikely to floor it outright. Then comes Thursday’s CPI print, where a 0.4% monthly rise looms as the risk against a 0.3% consensus. A hotter number could stiffen Treasury yields just as $119bn in 3s, 10s, and 30s roll through the auction pipeline, putting the bond market under strain and providing a temporary prop for the greenback.

And hanging over all of this is September 15, when corporate tax payments land and drain liquidity. SOFR has already nudged toward the top of its range, proof that short-term funding is tightening under the tax demand surface. History favours the dollar in September, and the so-called seasonal tax bid could keep the dollar on life support before the FOMC next week.

So the dollar sits there battered but still breathing. The weak data continue to whisper of deeper easing ahead—perhaps 150bps by next summer, pulling policy rates back toward 3%. But for now, the noise out of Paris and the turmoil in Tokyo provide just enough oxygen to keep the greenback from collapsing as the week begins, but the dollar is primed for a faceplant.