Significant Political Developments in the G7 – Currency Thoughts
Significant Political Developments in the G7
October 6, 2025
(171) French Prime Minister Lecornu resigned unexpectedly, acknowledging an inability of the cabinet to compromise on a budget framework. This was the third prime ministerial resignation in less than a year and the briefest cabinet stint in modern times. Such raises the possibility of an early election and introduces fresh uncertainty into the likelihood of European solidarity on geopolitical issues on such things as support for Ukraine and countermeasures against the increasingly aggressive Russian stance against NATO.
There has been an unexpected winner in the Japanese Liberal Democratic Party leadership vote, freeing the way for the government’s first woman prime minister of the postwar era. In a runoff round, Sanae Takaichi defeated the favored Kuzumi by 185-156 votes. She is a protege of the former and now deceased Prime Minister Abe. On issues like Japanese nationalism and immigration, she is more right-wing than Kuzumi, and on economic policy she favors a return to the fiscally stimulative and low-interest rate stance of Abenomics.
There has been no breakthrough in ending the U.S. federal government shutdown, now in its sixth day. President Trump has threatened to take advantage of this opportunity to expand the pace of government employee firings much more rapidly.
Financial market activity this Monday exemplifies the power of unexpected political change to incentivize financial market volatility.
- Japan’s Nikkei-225 equity index leaped 2176 points (4.8%), while the French CAC 40 has so far lost 1.3% of its value.
- Bitcoin’s price touched a fresh record high of $125,700 overnight and is currently up 0.6% on balance.
- Oil and gold have strengthened, too. Oil (+0.4%) got a lift from the decision by OPEC+ to not raise output in November by more than it will this month. Gold (+0.3%) inched closer to the $4,000 threshold.
- The euro fell $1.1732, a level not seen since August 21 and is currently 0.6% weaker than its pre-weekend closing level.
- The dollar has jumped particularly much (2.0%) against the Japanese yen. The Bank of Japan could become less inclined to raise interest rates under the next prime minister. ECB officials de Guindos and Lane today expressed satisfaction with their current monetary stance. Unlike the ECB, investors sense that Fed officials will press onward with rate cuts.
- Dollar gains against the Swiss franc and sterling so far today amount to 0.3% and 0.4%. A high of 1415 was touched against the Korean won, and the Turkish lira has lost 0.5%.
- Ten-year sovereign debt yields climbed overnight by seven basis points in France, four basis points in the U.K., three bps in Spain, Italy and the United States, and two bps in Japan and Germany.
- Stock markets leaped 2.7% in South Korea and 1.5% in Taiwan.
All the above took place in spite of a Monday-typical limited menu of economic data releases to be perused.
Retail sales volume in the euro area rose just 0.1% in August following a 0.4% drop in July. Average sales in July-August were 0.1% less than in the second quarter, and a 1.0% year-on-year increase in August was the smallest gain in 13 months.
Euroland’s construction purchasing managers index fell back 0.7 points to a 2-month low of 46.0 in September, depicting a deepening pace of contraction as the quarter drew to an end. Although the construction PMIs for Germany of 46.8 and Italy of 49.8 were higher than in July, the French index tumbled 3.8 points to a quite depressed 42.9 last month.
Britain’s construction PMI increased for a second straight month but at a 3-month high of 46.2 was not far above the 62-month low of 44.3 seen in July. As in the euro area, the construction sector in the U.K. remains in a pretty pronounced recession.
The Sentix measure of investor sentiment toward the euro area has ranged in 2025 from April’s 18-month low of -19.5 to +4.5 in June. October’s reading of -5.4 was not as negative as September’s -9.2 score.
India’s composite purchasing managers index has been revised lower to 61.0 from an initial estimated 61.9. That 3-month low was still not far from the alltime peak of 63.2 in August. For just the service sector, the reading was 60.9 after August 62.9.
The private PMI index for Hong Kong slid 0.3 points to a 2-month low of 50.4, not far from the level separating improvement from contraction.
Czech CPI inflation of 2.3% last month was its lowest since 1.8% in April and down from a September 2022 high of 18%.
Thailand CPI inflation of -0.7% in September was negative for a sixth straight month.
Serbian producer price inflation rose by a full percentage point to an 8-month high of 1.8% in September.
British car sales grew much faster in September (13.7% on year) than its year-to-date average rise of 4.2%.
Spanish industrial production slid 0.1% on month in August but recorded its largest 12-month increase (3.4%) in 29 months.
Copyright 2025, Larry Greenberg. All rights reserved. No secondary distribution without express permission.
Tags: British construction PMI and car sales, Euroland retail sales and construction PMI, political changes in France and Japan
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