Thursday Edition · Thu 22 Oct 2026
Yen Heads for Its Biggest Rally in a Month as Risk Aversion Grows, While France's Debt Worries Drag the Euro Lower
The Japanese yen strengthened on Thursday as investors sold technology stocks and sought safety from a Middle East escalation. The dollar rebounded from a three-week low against most other currencies, and the euro slipped as French bond yields stayed above 5%.
Not investment advice: this article is for information only.
Chanan Zevin - Chief Editor and Head of Desks
Published
The yen leads
The yen was set for its biggest rally in a month on Thursday as risk-averse investors moved away from the dollar, Reuters reported in a story carried by CNBC. USD/JPY traded at its lowest level since early October, below 157.20, according to FXStreet. By mid-afternoon in Europe the yen was up 0.63% against the dollar on the day, FXStreet data showed, and it was the strongest major currency against every other on its table. Chart 1 shows the dollar's moves against the main currencies at that point.
Why the yen
The yen tends to rise when investors become nervous. Japan is the world's largest creditor nation, and in times of stress Japanese investors bring money home while global traders close positions funded in yen. Thursday offered several reasons for nerves. US technology stocks fell sharply after earnings from Meta and Tesla, oil climbed to a five-month high after Houthi attacks in Saudi Arabia, and US Treasury yields dropped, narrowing the gap that has kept the dollar strong against the yen.
Yields and the yen
The fall in US yields matters especially for USD/JPY. The 10-year Treasury yield traded around 5.06% on Thursday, down from a high of 5.36% earlier this month, FXStreet reported. Japanese yields remain far lower than American ones, so the yield gap still favours the dollar. But when that gap narrows, the incentive to borrow in yen and invest in dollars weakens, and the yen can rise quickly as positions unwind.
The dollar's two faces
The dollar itself had a mixed day. The US Dollar Index fell to a three-week low near 101.45 in Asian trading, FXStreet said, before rebounding to around 101.85. Against the euro, the pound and the Australian and New Zealand dollars it gained. Against the yen, the Swiss franc and the Canadian dollar it lost ground. That split is typical of a risk-off session, when the safest currencies rise while those linked to growth and commodities, or to fiscal worries, fall.
The euro's burden
The euro lost 0.33% against the dollar on Thursday, reversing earlier gains, FXStreet reported, with EUR/USD trading around 1.1195 at one point. Early in the day the pair had been slightly below 1.1250. FXStreet said political turmoil in France and uncertainty over its fiscal outlook continue to weigh on the currency. The 10-year French bond yield rose above 5% for the first time since June 2002 and was trading around 5.05%.
Weak confidence
Data added to the euro's troubles. Preliminary figures showed eurozone consumer confidence fell to -17.9 in October from -16.5, worse than expectations of -17, FXStreet reported. Households are worried about energy prices and the political situation in several member states. Weak confidence points to softer consumer spending in the months ahead, which reduces the case for the European Central Bank to tighten policy even as inflation risks rise.
The pound holds steady
Sterling was more stable. GBP/USD closed higher for a second day on Wednesday and consolidated around 1.3400 early on Thursday, FXStreet reported. The pound lost 0.27% against the dollar during Thursday's session, according to the same data. UK gilt yields rose after stronger-than-expected inflation data, CaixaBank Research said, which supports the pound by reducing the chance of early rate cuts.
Commodity currencies
The Australian and New Zealand dollars fell against the US dollar on Thursday, by 0.29% and 0.54% respectively, according to FXStreet's table. Both currencies are sensitive to global risk appetite and to demand from Asia. The Canadian dollar, by contrast, gained 0.11% against the US dollar, helped by the jump in oil prices. Canada is a large oil exporter, so higher crude tends to support its currency.
The week so far
Over the week as a whole, the dollar has been weaker. As of Thursday morning it was down 0.53% against the euro, 0.67% against the pound, 0.53% against the yen and 0.76% against the Australian dollar, according to FXStreet's weekly table. Thursday's rebound against several currencies reduced some of those losses. The broader direction this month has been shaped by the fall in US yields from their early-October peak.
Central banks next week
Both the Federal Reserve and the ECB meet next week, and traders widely expect both to keep rates unchanged, FXStreet reported. It added that expectations of further hikes by year-end remain because energy-driven inflation linked to the Middle East could keep inflation above the 2% targets. For currencies, the message from each central bank about the next step will matter more than the decision itself.
Japan's options
For Japan, a stronger yen is welcome after a long period of weakness that raised import costs, especially for energy. A rise in oil prices increases Japan's import bill, which normally weakens the yen, so Thursday's gain shows how strongly safe-haven demand dominated. Japanese officials have in the past warned against excessive currency moves in either direction. A gradual yen recovery is unlikely to prompt any action.
Risk drives everything
The common thread on Thursday was risk sentiment. Reuters reported that the CBOE Volatility Index jumped after three sessions of declines and that investors moved into defensive sectors. When fear rises, currencies sort themselves into havens and risk assets. The yen and the Swiss franc gained, while the euro, the Australian dollar and the New Zealand dollar fell. A calmer day would likely reverse part of those moves.
The oil channel
Oil links several of these moves. Brent rose to $112.68 at one point, its highest since May, Reuters reported. That helps oil exporters such as Canada and Norway and hurts importers such as Japan and the euro area. Over time, a sustained rise in crude could weaken the currencies of big importers by worsening their trade balances. On Thursday, though, risk aversion outweighed that effect for the yen.
France as a euro risk
France is now a direct factor for the euro. A widening spread between French and German bonds raises questions about the cohesion of the euro area, even if no one expects a break-up. Investors who want exposure to European growth may choose to wait until the political situation in Paris stabilises. That caution limits the euro's upside even on days when the dollar weakens.
The Swiss franc
The Swiss franc behaved like the yen, if more modestly. The dollar slipped 0.06% against the franc on Thursday, and the euro lost 0.42% against it, according to FXStreet's table. Switzerland's low debt, current-account surplus and political stability make its currency a traditional refuge. A rising franc against the euro is a familiar sign of stress in European markets, and France's bond troubles give investors a specific European reason to buy it.
Stocks and currencies
The equity sell-off fed directly into currency markets. Meta fell about 7% and the Nasdaq dropped more than 2% at one point on Thursday, according to Reuters and Yahoo Finance. When large US technology stocks fall, foreign investors who bought them may reduce their dollar exposure, while domestic investors raise cash. At the same time, global funds that borrowed in low-yielding currencies to buy risk assets close those trades, which pushes the funding currencies up. The yen benefits most from that unwinding.
Positioning risk
Positioning adds to the potential for sharp moves. After months in which the yen was weak and the dollar strong, many investors held positions that would profit from those trends continuing. When the trend turns, even briefly, those positions are closed in a rush. That can turn a modest fall in US yields into a much larger move in USD/JPY. The same mechanism works in reverse, so a calm session could see part of Thursday's yen gain disappear.
The jobs data
US jobless claims fell to 194,000 last week, the lowest in three months, Yahoo Finance reported. Strong labour data usually support the dollar because they reduce the chance of rate cuts. That helps explain why the dollar recovered from its early low against the euro and the pound even as yields fell.
What to watch
Traders will watch whether USD/JPY breaks further below 157, how French politics evolves, and what the Fed and ECB say next week. The Journal will report exchange rates with their time and source, and will not treat a single day's move as a trend.
Sources
- Reuters via CNBC, Yen set for biggest rally in a month; risk-averse investors shun dollar, 22 Oct 2026 · cnbc.com
- FXStreet, Euro retreats as US Dollar regains ground, France's debt worries weigh, 22 Oct 2026 · fxstreet.com
- FXStreet, Forex Today: US Dollar extends slide as US yields stretch lower, 22 Oct 2026 · fxstreet.com
- CaixaBank Research, Financial Markets Daily Report, 22 Oct 2026 · caixabankresearch.com
- Reuters via Devdiscourse, Nasdaq leads Wall Street lower, 22 Oct 2026 · devdiscourse.com
- Reuters via Yahoo Finance, Brent hits five-month high, 22 Oct 2026 · finance.yahoo.com
- Yahoo Finance, Stock market today, 22 Oct 2026 · finance.yahoo.com
Related
- France's 10-Year Yield Holds Above 5% for the First Time Since 2002 as Treasuries Rally on a Flight to Safety
- Nasdaq Slides Up to 2.2% as Meta's New Non-Voting Shares and Tesla's Spending Plans Revive AI Cost Fears
- Brent Hits a Five-Month High Near $113 as Houthi Strikes and Iran War Plans Outweigh Strong Gulf Exports