Dollar Strengthens as Asian Markets React to Geopolitical Shifts

The Asian-Pacific markets opened the week with a mix of caution and optimism. The US dollar strengthened against major currencies, with EUR/USD hitting its lowest point since May 2025. In Japan, officials toughened their rhetoric on the yen as USD/JPY hovered near 158. The Nikkei index surged 2.5% to a three-month high, driven by a rally in AI-related stocks amid softer expectations of a Federal Reserve rate hike.

Oil prices edged lower, with Brent crude slipping toward $102 per barrel. This decline came despite claims by Yemen's Houthis of attacks on Saudi Aramco facilities. Saudi Aramco unexpectedly cut its November Arab Light price to Asia by $3, marking the widest discount since 2020. Meanwhile, OPEC+ maintained steady output levels, with core members producing 5 million barrels per day below pre-war levels.

In Japan, Bank of Japan Deputy Governor Uchida described artificial intelligence as a significant demand shock lifting prices and warned of potential correction risks. The country's services PMI eased to 51.3, although hiring picked up and price pressures remained intense. Australia's services PMI also slowed to 51.9, with job cuts returning and price pressures building. Treasurer Jim Chalmers labeled the Iran war an economic disaster, warning of rising bond yields.

Deutsche Bank's Ghali suggested that gold is oversold and underowned, recommending buying the metal. Japanese gold producers are hoarding the metal domestically, while the LBMA faces risks in the $1 trillion-a-week gold market. The Federal Reserve's September meeting minutes, due on Wednesday, will test the guidance for one more hike as October odds fade.