Yen, euro extend slide against dollar on fiscal concerns
Holograms are seen on the new Japanese 5,000 yen banknote displayed at a currency museum of the Bank of Japan in Tokyo, Japan July 3, 2024. REUTERS/Issei Kato/Pool
NEW YORK :Concerns about more fiscal spending in Japan and political uncertainty in France drove the Japanese yen and euro lower against the U.S. dollar on Tuesday, with traders also focused on any signs of when the U.S. federal government will reopen.
The yen fell to a six-month low after Sanae Takaichi’s leadership victory in Japan on Saturday.
Takaichi, who is expected to become Japan's next prime minister, has pledged to boost the Japanese economy with aggressive spending and has been critical of the Bank of Japan's interest rate hikes.
Money market traders are now pricing in just a 26 per cent chance that the BoJ will raise interest rates at its next policy meeting on October 30, from around 60 per cent before Takaichi's leadership victory.
"There's going to be a period of time where (investors) try and figure out how exactly her policies will affect the currency," said Lou Brien, strategist at DRW Trading in Chicago.
Against the Japanese yen, the dollar was last up 0.37 per cent at 150.88. It earlier reached 151.02, the highest since March 28.
"For this month, the BoJ will perhaps stay on hold just to be on the safe side but in December they'll get a bit more data and I think they'll deliver another hike," said Mohamad Al-Saraf, forex research associate at Danske Bank.
"Inflation is still too high, rates are still too low, and the case for another BoJ hike this year is still alive."
Japan's finance minister said authorities were watching out for excessive moves in currency markets.
EURO ON THE BACK FOOT
The euro remained on a fragile footing following the resignation of France's prime minister on Monday, adding to pressure on President Emmanuel Macron and putting fiscal consolidation in doubt.
France is now likely to miss a deadline to present its 2026 budget bill, meaning lawmakers will need to pass emergency stopgap legislation to authorize spending from January 1 until a full budget is approved.
The single currency was last down 0.4 per cent at $1.1662.
The dollar index rose 0.36 per cent to 98.47.
The U.S. currency has weakened this year on concerns about a deteriorating fiscal outlook, expectations of slowing growth and fears that President Donald Trump's tariff policies will scare investors away from U.S. assets.
That move has paused since the end of June with the greenback largely consolidating against most major peers, said DRW's Brien.
Brien expects dollar weakness to resume, however, on a weakening labor market.
"The labor market here is weaker and will continue to be weaker than is generally appreciated. And not only will you get a likely very dovish Fed chair to replace (Jerome) Powell next year, but in between now and then I think Fed policy will probably be a little bit easier than is currently being priced in."
So far markets have largely shrugged off the government shutdown, however the longer it continues the more likely it will also hurt the greenback "because you'll get a weaker economic performance," Brien said.
The shutdown delayed last Friday's closely watched monthly jobs report for September and is set to postpone other key releases until the government reopens.
In cryptocurrencies, bitcoin fell 1.24 per cent to $123,717 after reaching a record $126,223.18 on Monday.
