On Friday, the yen remained vulnerable ahead of a crucial policy decision by the Bank of Japan (BOJ) that could potentially scale back its extensive monetary stimulus. Meanwhile, the euro, amid political turbulence, was poised for a weekly decline.
The dollar strengthened, buoyed by gains against the euro and safe-haven bids spurred by France's call for a snap election, which heightened concerns about political instability in the country and the broader eurozone.
The yen slightly weakened to 157.08 per dollar, on track for a marginal weekly loss of approximately 0.2%. However, movements were subdued pending the BOJ's two-day monetary policy meeting conclusion later on Friday. While the central bank is expected to maintain ultra-low rates, it might announce a tapering of its significant bond purchases, signaling a gradual shift away from quantitative easing.
Ray Attrill, head of FX strategy at National Australia Bank (OTC), commented, "Our central view is that they will announce a reduction. The risks are somewhat asymmetric. If they announce no changes, the yen would likely weaken, whereas the potential for yen strengthening, assuming they do make some adjustments, is relatively limited."
In the broader market, major currencies struggled against a slightly stronger dollar. Sterling edged 0.08% lower to $1.2752, set for a weekly gain of 0.3%. The Australian dollar fell 0.18% to $0.6625, and the New Zealand dollar eased 0.26% to $0.6152. Despite these declines, both currencies were on track to rise 0.8% and 1% for the week, respectively, due to expectations that rates there could remain higher for longer. Additionally, a series of U.S. economic data revived hopes for earlier rate cuts from the Federal Reserve.
Thursday's data revealed an increase in new unemployment claims to a 10-month high, while separate data showed producer prices unexpectedly fell in May. This added to bets that the Fed might start its easing cycle in September. These figures followed Wednesday's U.S. inflation report, which indicated consumer prices were unchanged in May.
Despite the Fed adopting a more hawkish tone than anticipated at its recent meeting and projecting only one rate cut for 2024, investors focused on the softer-than-expected data. This led to Wall Street reaching record highs and Treasury yields falling. Jean Boivin, head of the BlackRock (NYSE) Investment Institute, noted, "The Fed has changed its mind multiple times on its expected policy path, so we don't put much weight on its new set of projections - and Powell himself said he didn't 'hold it with high confidence,' emphasizing the Fed's data-dependent approach. Incoming inflation surprises, in either direction, will likely continue to lead to significant revisions to the policy outlook."
The euro remained steady at $1.0737, facing a weekly loss of about 0.6%. The single currency had a turbulent week following French President Emmanuel Macron's decision to call a snap election, unsettling investors. Macron called for a snap parliamentary election after France's far right heavily defeated his party in the EU parliament election.
Against the British pound, the euro hovered near a 22-month low, set for a weekly decline of 0.9%. It also lingered near its weakest level in over five months against the Australian dollar and six months against the New Zealand dollar.
Erik-Jan van Harn, senior macro strategist at Rabobank, remarked, "Although Macron's announcement was unexpected, new elections could potentially work in his favor. However, the likelihood of this scenario is quite low. It is more probable that Macron's political standing will diminish, though not to the extent of preventing him from forming a new government. Macron's party suffered a significant setback in the European elections, and unfavorable results in the upcoming elections could further exacerbate concerns about the sustainability of the country's debt."
Paraphrasing text from "Reuters" all rights reserved by the original author.
