Politics took centre stage in currency markets on Monday, with the Yen posting its sharpest drop against the Dollar in five months as Sanae Takaichi emerged as Japan’s likely next prime minister, while the Euro fell following the resignation of France’s new prime minister.

Takaichi, a former internal affairs and economic security minister, secured the ruling Liberal Democratic Party’s leadership over the weekend. Her win prompted traders to scale back expectations of a Bank of Japan rate hike this month, driving the Yen lower across major currencies.

The Dollar climbed over 2% to 150.47 Yen, its strongest level since early August. If maintained, it would mark the biggest one-day gain since 12^th May, Reuters reports.

Whereas in Asian trading, the Euro reached a record high of 176.22 Yen before easing back to 175.3 Yen, still up 1.2%, following news of the French prime minister’s resignation.

In addition, long-term Japanese government bonds came under pressure, while Yen swap markets priced in just under a 50% chance of a rate hike by December, down from 68% at the end of last week.

At the same time, the Euro weakened after French Prime Minister Sebastien Lecornu and his cabinet resigned on Monday, only hours after he had unveiled his ministerial lineup, marking a significant escalation in France’s political turmoil.

The Euro fell 0.76% to $1.1655 and declined 0.3% against the Pound, hitting its lowest level in nearly a month.

The focus now shifts to President Macron and how he navigates the current political deadlock. For markets, the most concerning scenario would be if Macron attempts to resolve the deadlock by calling snap parliamentary elections, which would prolong near-term uncertainty and likely push the Euro even lower.

Elsewhere, Sterling slipped 0.3% to $1.3431 against the greenback, while the Swiss Franc weakened by a similar margin to 0.7993 per Dollar.