Euro Faces Steep Decline Amid French Political Unrest; Yen Rises After BOJ Decision

Summary:
The euro is experiencing its largest weekly decline in two months, falling 1% this week and 0.4% on Friday to $1.0696, driven by political turmoil in France. This decline has bolstered the dollar, with the dollar index rising 0.3% on the day and 0.6% for the week. French markets are suffering, with a significant increase in the premium on government debt and a sharp drop in bank stocks. Finance Minister Bruno Le Maire warned of a potential financial crisis if either the far right or left wins upcoming parliamentary elections.
Meanwhile, the yen rebounded after initially dropping to a one-month low, following the Bank of Japan’s decision to maintain current interest rates and continue bond buying, surprising the markets. The dollar initially gained against the yen but later stabilized. Analysts note that the BOJ’s cautious stance might lead to a slow reversal of its ultra-easy monetary policy. BOJ Governor Kazuo Ueda mentioned that a rate hike in July could be considered depending on economic data.
U.S. employment data has fueled speculation that the Federal Reserve could begin easing in September, though the euro’s weakness has been the primary market driver this week. The euro also fell to a three-month low against the Swiss franc, while sterling is set for its biggest weekly gain against the euro in nearly seven months but fell 0.5% against the dollar.
Reporting by Iain Withers in London and Rae Wee in Singapore; Editing by Shinjini Ganguli and Frances Kerry.