By Yara Abi Farraj
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Euro on track for greatest monthly fall since January, dollar close to 40-year high against yen

At 172.38 yen per euro, the currency declined to a record low on the common currency early on Friday
Euro on track for greatest monthly fall since January, dollar close to 40-year high against yen
The euro declined 0.06 percent to $1.0698 and is set to end the month with a 1.33 percent drop, the biggest since January when it fell by 1.99 percent

The euro is close to its largest decline since January as the dollar surged to almost a 40-year high against the weakening yen ahead of the release of key U.S. inflation data. The euro declined 0.06 percent to $1.0698 and is set to end the month with a 1.33 percent drop, the biggest since January when it fell by 1.99 percent. Meanwhile, the yen hit 161.27 per dollar, its weakest since 1986.

France uncertainty impacts European market

Political uncertainty in France ahead of the elections has impacted the euro, raising fear among investors that the new French government could increase fiscal spending. This threatens the sustainability of the country’s public debt and the financial stability of the bloc.

In France, the risk premium investors demand to hold French government bonds rose to its highest since 2012 today before the first round of voting starts this weekend.

At the same time, traders are cautiously testing Japan’s determination to protect its currency while keeping a keen eye on crucial U.S. inflation data.

Read: Japan spends record $62 billion to prop up yen amid currency volatility

Yen quarter’s biggest loss

The dollar index neared Wednesday’s eight-week high, recording a 0.07 percent rise to 105.98. The dollar has recorded a 1.5 percent rise this quarter so far, maintaining a 2-month quarterly gain as markets lost hope for an interest rate cut in the first half of the year.
The Federal Reserve’s preferred inflation measure, the personal consumption expenditures (PCE) index, is due later today. If the index’s annual growth slowed to 2.6 percent in May, it may open the way to cuts later this year.

So far this quarter, the currency that recorded the greatest loss is the yen, declining 6 percent against the dollar since the end of March and over 12 percent so far this year. At 172.38 yen per euro, the currency declined to a record low on the common currency early on Friday.

Core inflation in Tokyo saw an increase this month, recent data revealed. However, that did little to support the yen. In addition, low Japanese interest rates have encouraged selling yen for higher-yielding currencies even as Japanese yields have started to rise and officials have warned of another round of currency intervention.

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