NEW YORK :The yen stabilised on Friday but was headed for its steepest weekly drop in a year as the chances of a near-term rate hike faded, while the euro held near two-month lows, hurt by the political crisis in France.
The Japanese currency has dropped on concerns that the Bank of Japan may not hike interest rates again this year after fiscal dove Sanae Takaichi’s surprise victory to lead the ruling party, stoking worries of Japanese authorities needing to step in to support the yen.
Japanese Finance Minister Katsunobu Kato said on Friday that the government was concerned about excessive volatility in the foreign exchange market.
“Today was the first time that the Minister of Finance expressed a verbal intervention, cautioning about excessive moves in the yen,” said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.
Japanese officials last year expressed concern about a move that weakened the currency by 10 yen in a month and Chandler said a similar move today from the September 17 low would indicate concern around the 155.5 yen level.
The yen was last up 0.29 per cent against the greenback at 152.61 per dollar, still close to its weakest since mid-February and heading for a 3.5 per cent drop for the week, its biggest decline since September 2024. It has weakened from 147.44 yen per dollar last Friday.
Takaichi said on Thursday she did not want to trigger excessive declines in the yen. She added that the BOJ is responsible for setting monetary policy but that any decision it makes must align with the government’s goal.
She looked set to become prime minister in a parliament vote that was expected on October 15. But the date will be likely pushed back after the Liberal Democratic Party’s junior coalition partner Komeito pulled its support, breaking their 26-year-old alliance.
Traders are currently pricing an about 45 per cent chance of a rate hike from the BOJ in the December meeting and are only fully pricing in a 25-basis-point hike in March.
FRENCH DRAMA DENTS EURO
The euro headed for its biggest weekly decline since November at 1.5 per cent, hurt by political turmoil in France, but held steady on the day at $1.1565.
President Emmanuel Macron welcomed mainstream political leaders to a crunch meeting at the Elysee ahead of a self-imposed late-Friday deadline to name a new prime minister, as the country’s central bank chief warned political disorder was sapping growth.
The political paralysis has made it challenging to pass a belt-tightening budget and has made investors increasingly worried about France’s worsening deficit, on top of evidence of slowing momentum in other key economic engines such as Germany.
“The data from Germany’s not good, and therefore I think that makes the euro a little bit more susceptible to wobbles on the French news,” said Rabobank chief strategist Jane Foley.
The dollar index, which measures the U.S. currency against six others, was near a two-month high and headed for a weekly rise of 1.66 per cent, its biggest in a year.
This week, “there’s been a lot of technical damage done to the foreign currencies,” Chandler said.
Traders are watching for signs on when the U.S. federal government will reopen and release data that will shape Federal Reserve policy.
The U.S. Bureau of Labor Statistics is bringing some furloughed workers back in order to get the statistical agency’s benchmark report on inflation out despite the wider shutdown of the federal government, the New York Times and Bloomberg reported on Thursday.
Traders are pricing in a 95 per cent chance that the Federal Reserve cuts rates by 25 bps at its October meeting, while the odds of an additional cut in December are at 82 per cent, according to the CME Group’s FedWatch Tool.
The Canadian dollar jumped against the greenback after data on Friday showed that Canada’s economy posted a surprise 60,400 net job gains in September.
The loonie was last up 0.22 per cent versus the greenback to C$1.4 per dollar.
In cryptocurrencies, bitcoin gained 0.70 per cent to $122,024.
