(Updated in New York morning time)

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Yen hurt by BOJ rate hike uncertainty, political changes

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Euro declines amid French political turmoil, economic

concerns

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Dollar index rises, traders eye US Fed rate cut

expectations

By Karen Brettell and Amanda Cooper

NEW YORK, Oct 10 (Reuters) - The yen stabilised on

Friday but was headed for its steepest weekly drop in a year as

the chances of a near-term rate hike faded, while the euro held

near two-month lows, hurt by the political crisis in France.

The Japanese currency has dropped on concerns that the Bank of

Japan may not hike interest rates again this year after fiscal

dove Sanae Takaichi's surprise victory to lead the ruling party,

stoking worries of Japanese authorities needing to step in to

support the yen.

Japanese Finance Minister Katsunobu Kato said on Friday that the

government was concerned about excessive volatility in the

foreign exchange market.

"Today was the first time that the Minister of Finance

expressed a verbal intervention, cautioning about excessive

moves in the yen," said Marc Chandler, chief market strategist

at Bannockburn Global Forex in New York.

Japanese officials last year expressed concern about a move

that weakened the currency by 10 yen in a month and Chandler

said a similar move today from the September 17 low would

indicate concern around the 155.5 yen level.

The yen was last up 0.29% against the greenback at

152.61 per dollar, still close to its weakest since mid-February

and heading for a 3.5% drop for the week, its biggest decline

since September 2024. It has weakened from 147.44 yen per dollar

last Friday.

Takaichi said on Thursday she did not want to trigger

excessive declines in the yen. She added that the BOJ is

responsible for setting monetary policy but that any decision it

makes must align with the government's goal.

She looked set to become prime minister in a parliament vote

that was expected on October 15. But the date will be likely

pushed back after the Liberal Democratic Party's junior

coalition partner Komeito pulled its support, breaking their

26-year-old alliance.

Traders are currently pricing an about 45% chance of a rate hike

from the BOJ in the December meeting and are only fully pricing

in a 25-basis-point hike in March.

FRENCH DRAMA DENTS EURO

The euro headed for its biggest weekly decline since

November at 1.5%, hurt by political turmoil in France, but held

steady on the day at $1.1565.

President Emmanuel Macron welcomed mainstream political

leaders to a crunch meeting at the Elysee ahead of a

self-imposed late-Friday deadline to name a new prime minister,

as the country's central bank chief warned political disorder

was sapping growth.

The political paralysis has made it challenging to pass a

belt-tightening budget and has made investors increasingly

worried about France's worsening deficit, on top of evidence of

slowing momentum in other key economic engines such as Germany.

"The data from Germany's not good, and therefore I think

that makes the euro a little bit more susceptible to wobbles on

the French news," said Rabobank chief strategist Jane Foley.

The dollar index, which measures the U.S. currency

against six others, was near a two-month high and headed for a

weekly rise of 1.66%, its biggest in a year.

This week, "there's been a lot of technical damage done to

the foreign currencies," Chandler said.

Traders are watching for signs on when the U.S. federal

government will reopen and release data that will shape Federal

Reserve policy.

The U.S. Bureau of Labor Statistics is bringing some

furloughed workers back in order to get the statistical agency's

benchmark report on inflation out despite the wider shutdown of

the federal government, the New York Times and Bloomberg

reported on Thursday.

Traders are pricing in a 95% chance that the Federal Reserve

cuts rates by 25 bps at its October meeting, while the odds of

an additional cut in December are at 82%, according to the CME

Group's FedWatch Tool.

The Canadian dollar jumped against the greenback after data on

Friday showed that Canada's economy posted a surprise 60,400 net

job gains in September.

The loonie was last up 0.22% versus the greenback to C$1.4

per dollar.

In cryptocurrencies, bitcoin gained 0.70% to

$122,024.