Japanese yen, euro weaken against dollar on fiscal issues
The Japanese yen and euro weakened against the dollar on Monday on fiscal and political stability concerns after Japan’s ruling Liberal Democratic Party elected a new leader and France’s new government resigned.
The yen weakened after Japan’s ruling party elected conservative Sanae Takaichi, an advocate of the late prime minister Shinzo Abe’s “Abenomics” strategy of boosting the economy with aggressive spending and loose monetary policy, as its leader on Saturday.
His victory caused traders to reduce speculation that the Bank of Japan would raise interest rates this month.
“It was unexpected that it would be Takaichi,” said Sarah Ying, head of FX strategy, FICC Strategy at CIBC Capital Markets in Toronto.
“There’s a bit more focus on the back side of the curve now, given that Takaichi is generally seen as a follower of Abenomics. Markets are expecting a bit more fiscal stimulus there.”
The dollar rose more than 2% to 150.47 yen, its highest level since August 1. It was last up 1.64% at 149.86 yen, and if maintained, it would be the biggest daily gain since May 12.
The euro hit 176.25 yen, its highest since the single currency was introduced in 1999. The euro was last up 1.28% at 175.38 yen.
However, the euro weakened against the dollar and pound, after France’s new Prime Minister Sebastien Lecornu and his government resigned on Monday, hours after Lecornu announced the make-up of his cabinet, making it the shortest-lived government in modern French history.
“The crisis is actually not that big, and it doesn’t look good domestically, especially considering what’s happening with the budget,” Ying said. “The biggest risk is actually if (President) Macron resigns, but it doesn’t seem like a high-risk scenario.”
The euro was last down 0.35% at $1.1699 and earlier hit $1.1649, its lowest since Sept. 25. The currency also weakened against the Pound to its lowest level since September 18.
The dollar index rose 0.5% to 98.16.
Traders are waiting for signs that the US federal government will reopen, with Congress so far unable to pass a bill to resume funding operations.
The shutdown left a void in US economic data, with Friday’s closely watched September monthly jobs report delayed along with other key releases until the government reopens.
The Federal Reserve is expected to cut interest rates again by 25 basis points at its Oct. 28-29 meeting, following data showing a weakening labor market.
Traders are also pricing in an 82% chance of additional cuts in December, according to CME Group’s FedWatch Tool, although this will likely depend on data released before that date.
In cryptocurrencies, bitcoin was last up 1.98% at $125,208, after hitting a record high of $125,653 on Sunday.
Source: Reuters (Reporting by Karen Brettell; Additional reporting by Gregor Stuart Hunter and Alun John; Editing by Susan Fenton)
