Yen heads for worst week in a year
The Japanese yen steadied slightly on Friday, rising 0.2% to 152.7 per U.S. dollar, but remained near its weakest level since mid-February. For the week, the yen is set to fall 3.5%, its steepest decline since October 2024. This comes amid diminishing hopes for a near-term interest rate hike by the Bank of Japan.
The slide followed the unexpected leadership win by fiscal dove Sanae Takaichi, fueling concerns the central bank may delay further tightening. Takaichi, poised to become Japan’s first female prime minister, emphasized that BOJ decisions must align with the government’s objectives. Finance Minister Katsunobu Kato added that the government was watching currency volatility closely.
Markets now see only a 45% chance of a rate hike in December, with full expectations pushed to March. Analysts believe Takaichi’s leadership could make it politically challenging for the BOJ to raise rates, adding further pressure to the yen.
Political turmoil drags euro lower
The euro hovered near two-month lows at $1.15705 and is on track for a 1.5% weekly drop, its worst in 11 months. The currency has been hit by renewed political instability in France, as President Emmanuel Macron searches for his sixth prime minister in under two years following the resignation of Sébastien Lecornu.
The leadership crisis threatens the approval of France’s budget, already under scrutiny from investors wary of the country’s widening fiscal deficit. Kieran Williams of InTouch Capital Markets noted that the turmoil has significantly weighed on euro sentiment.
Dollar climbs on global uncertainty
The U.S. dollar index rose to 99.33, close to a two-month high and set for a 1.7% weekly gain, the biggest in a year. Chris Weston of Pepperstone said the recent rally forced a covering of short positions but cautioned that the dollar might struggle to break above the 100 mark sustainably.
With little economic data due to the ongoing government shutdown, traders are watching Fed commentary closely. New York Fed President John Williams signaled openness to another rate cut, despite inflation concerns. Market odds for an October cut stand at 95%, while December cut expectations have dipped from 90% to 80% this week.
Other currencies remain under pressure
The Australian dollar firmed slightly to $0.6565, while the British pound traded at $1.331, down 1% for the week and nearing two-month lows. The New Zealand dollar remained weak at $0.5755 after the central bank cut rates and warned of possible further easing due to economic fragility.
