Yen and Euro Face Significant Weekly Losses Amid Economic Turmoil

The yen is set to experience its steepest weekly drop in a year, while the euro hovers near two-month lows, both currencies affected by economic uncertainties in their respective regions. As of Friday, the yen showed signs of stabilization at 152.61 per dollar, after a significant decline fueled by fading expectations of an imminent interest rate hike from the Bank of Japan (BOJ). This week, the yen has weakened by approximately 3.5 percent, its largest decline since September 2024.

Japanese Finance Minister Katsunobu Kato expressed concerns regarding 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,” noted Marc Chandler, chief market strategist at Bannockburn Global Forex in New York. The yen’s drop is tied to the recent political developments surrounding Sanae Takaichi, who emerged victorious in the ruling party’s leadership election, raising doubts about potential interest rate increases this year.

Political Uncertainty in France Affects Euro

Meanwhile, the euro is facing its most significant weekly decline since November, falling by 1.5 percent. This decline has been exacerbated by the ongoing political turmoil in France, where President Emmanuel Macron convened a critical meeting with political leaders to address the appointment of a new prime minister. The urgency of this meeting follows a self-imposed deadline set for late Friday, highlighting the government’s struggle to navigate a politically charged environment.

The uncertainty surrounding French politics has cast a shadow on the euro, as investors grow increasingly concerned about the country’s widening deficit. Compounding these worries is the slowing momentum in key economic regions 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 Jane Foley, chief strategist at Rabobank.

As the euro holds steady at approximately $1.1565, the dollar index, which tracks the U.S. currency against six others, is nearing a two-month high, poised for a weekly rise of 1.66 percent. This surge is attributed to the anticipation of potential changes in Federal Reserve policy, particularly as traders speculate about the timing of the U.S. federal government’s reopening and its implications for economic data releases.

Market Reactions and Economic Indicators

Traders are currently pricing in a 95 percent likelihood that the Federal Reserve will cut rates by 25 basis points during its upcoming meeting in October, with an 82 percent chance of an additional cut in December. This sentiment reflects concerns over the broader economic landscape, as the U.S. Bureau of Labor Statistics works to bring back furloughed employees to ensure the timely release of key inflation reports.

In currency movements, the Canadian dollar appreciated against the greenback following a report indicating that Canada experienced a surprise of 60,400 net job gains in September, leading to a 0.22 percent increase to C$1.4 per dollar. Additionally, in the realm of cryptocurrencies, bitcoin recorded a gain of 0.70 percent, reaching $122,024.

Overall, the fluctuations in the yen and euro underscore the complexities of the current global economic environment, where political decisions and monetary policies significantly impact currency stability. As markets react to these developments, investors remain vigilant, closely monitoring both domestic and international indicators that could further influence their strategies.