Yen weakest since mid-February, euro drops
Banknotes of Japanese yen are seen in this illustration picture taken September 23, 2022. REUTERS/Florence Lo/Illustration
NEW YORK :The Japanese yen fell to its weakest level against the dollar since mid-February on Thursday as the newly elected leader of Japan's ruling party Sanae Takaichi failed to instill confidence in the market about the direction of the currency.
Takaichi said she did not want to trigger excessive declines in the yen, which led to a brief rally, before the currency weakened back to its lows of the day.
"We did see an uptick there briefly, at least it indicates that they're watching, but we don't really know what excessive means in the context for what you're going to tolerate," said Adam Button, chief currency analyst at investingLive in Toronto.
Takaichi added that "there are pros and cons to a weak yen."
The dollar was last up 0.27 per cent at 153.09 yen after earlier reaching 153.23, the highest since February 13.
The yen has tumbled this week on concerns that Takaichi will introduce more fiscally expansive policies.
The yen has slowed its decline, however, as traders evaluate how much room she will have to stimulate the economy.
“Traders are turning a little bit more skeptical on the Takaichi administration's capacity for passing fiscal stimulus and pushing back against the Bank of Japan's tightening plans,” said Karl Schamotta, chief market strategist at Corpay in Toronto.
“That's a reflection of underlying inflation dynamics in Japan. The reality is that Japanese households are agitating for change because inflation is running at elevated levels,” Schamotta said.
Takaichi said that the country's central bank is responsible for setting monetary policy but that any decision it makes must align with the government's goal.
EURO DROPS AS FRENCH POLITICAL UNCERTAINTY DEEPENS
The euro, meanwhile, has dropped since French Prime Minister Sebastien Lecornu tendered his resignation and that of his government on Monday. The political paralysis has made it challenging to pass a belt-tightening budget sought by investors who are increasingly worried by France's expanding deficit.
French President Emmanuel Macron’s office said on Wednesday he would appoint a new prime minister within 48 hours.
European Central Bank policy is robust enough to respond to changes in the euro zone inflation outlook, so the bank can afford to keep a steady hand until it gains more clarity, policymakers concluded last month, according to the accounts of their September 10-11 meeting.
The single currency was last down 0.61 per cent at $1.1555 and reached $1.1545, the lowest since August 5. The dollar index gained 0.62 per cent to 99.47, the highest since August 1.
The dollar is being aided by some more hawkish commentary by Federal Reserve officials.
Minutes from the U.S. central bank’s September meeting released on Wednesday showed that officials agreed that risks to the U.S. job market had increased enough to warrant an interest rate cut but remained wary of high inflation.
“We are seeing a more hawkish tone from Fed policymakers, both in the minutes from September's meeting as well as ongoing commentary. And that's pushing back on market expectations for further aggressive easing,” said Schamotta.
Traders are pricing in a 95 per cent chance that the Fed cuts rates by 25 basis points at its October 28-29 meeting, while the odds of an additional cut in December have dropped to 82 per cent, from 90 per cent, in the past week, according to the CME Group’s FedWatch Tool.
Fed Governor Michael Barr on Thursday said that the U.S. central bank should move cautiously on further interest rate cuts due to inflation risks.
New York Fed President John Williams, meanwhile, backs more interest rate cuts this year given the risk of a further slowdown in the labor market, he said in an interview published by The New York Times on Thursday.
Traders are also focused on how long the U.S. federal government shutdown will last, with the economy likely to take a bigger hit the longer it drags on.
U.S. Transportation Secretary Sean Duffy warned on Thursday that the government could dismiss air traffic controllers who repeatedly fail to show up for work during the government shutdown, saying a spike in absences is causing significant air disruptions.
In cryptocurrencies, bitcoin fell 1.93 per cent to $120,578.
