The US Dollar (USD) is strengthening broadly and meaningfully against all of the G10 currencies as we head into Wednesday’s NA session, making notable gains and hitting fresh local highs against key currencies—most importantly the EUR. Political uncertainty in Europe appears to be broadening as the Dutch government faces a no confidence vote ahead of an election scheduled for October, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret note.

USD strengthening broadly and fully retracing post-Jackson Hole losses

"French bond markets look to have stabilized somewhat following Tuesday’s announcement of a September 8 confidence vote, however the country’s yields remain elevated as French-German yield spreads continue to widen. Market participants remain focused on Fed developments following President Trump’s attempt at firing BoG member Cook. The Senate Banking Committee is set to hold its nomination hearing for White House economic advisor Stephen Miran next week."

"Miran has only been nominated to replace departing BoG member Kugler—whose term ends in January—however Trump suggested Tuesday that Miran could potentially fill Cook’s vacancy, which expires in 2038. The USD has now fully recouped its Jackson Hole-driven losses and the relative performance among the G10 currencies reveals notable overnight weakness in NZD, EUR, and CHF. GBP and MXN are mid-performers with minor declines while the CAD is outperforming on the crosses with marginal weakness vs. the USD. Broader markets are mixed and offering no clear tone as equity futures consolidate within an incredibly tight range just below their recent high."

"The US 10Y is quietly consolidating just above 4.25% while the 2Y has dropped to a fresh local low of 3.65%, sending the 2-10 spread to its highest level since the period of bond market turbulence observed in mid/late April. In commodities, oil prices (WTI) are marginally extending Tuesday’s bearish reversal and trading defensively with a continued focus on concerns about oversupply as well as US tariffs on India. Copper is also weak and trading to the lower end of its recent range as gold pulls back to the midpoint of its range from April. Wednesday’s US release calendar is empty, leaving the focus squarely centered on headline risk and Fed developments."