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Yen strengthens on growing risk aversion

ForexAug 09, 2018 04:34AM ET
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© Reuters. Illustration photo of a Japan Yen note

By Tom Finn

LONDON (Reuters) - The Japanese yen rose broadly on Thursday in an apparent reflection of concern among investors about an uptick in geopolitic tensions from the U.S.-China trade war to Brexit.

Global foreign exchange markets this summer have been dominated by political angst from U.S. sanctions on Russia and Turkey to rising tensions in the Middle East and in Europe.

The Russian rouble retreated to its lowest since November 2016 overnight, weakening beyond the psychologically important 65 per dollar threshold, after Washington said it would impose fresh sanctions on Moscow.

The Turkish lira touched a fresh record low against the dollar, weakening some 2.5 percent from Wednesday's close after a Turkish delegation met U.S. officials to try to resolve disputes between the two NATO allies.

"Politics continues to wreak short-term havoc in global FX markets – and to the extent where we’re questioning whether any currency is truly safe," said Viraj Patel, a currency strategist at Dutch bank ING.

Markets remain worried by the global trade conflict but traders are focusing on talks in Washington on Thursday in which Japan will seek to avert tariffs on its car exports and fend off U.S. demands for a bilateral free trade agreement.

This year's global trade row has seen the dollar strengthen and the Chinese yuan tumble while the safe haven yen has stayed resolutely weak, falling about four percent against the dollar over the past six months.

That has prompted speculation that the currency's depreciation could be an issue in Thursday's talks as Donald Trump has voiced concerns over countries deliberately weakening their currencies- ignoring a custom that U.S. presidents avoid openly interfering in financial markets.

The yen on Thursday rose to a ten-day high against the dollar of 110.76 and strengthened against the euro. (EURJPY=D3)

The currency was lifted on Wednesday after reports that Bank of Japan board members had disagreed on how far interest rates should be allowed to move from the central bank's target.

"The yen-buying trend has been gathering pace since early August and the moves generated on the latest BOJ news added further momentum," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

Elsewhere, the U.S. dollar, which has been playing more of a role recently as a safe-haven, rose 0.3 percent to 95.336 on the dollar index which tracks the greenback versus a group of six currencies. (DXY)

That kept the euro in the red at $1.15765, not far from a 2018-low of $1.15080 (EUR=EBS).

The dollar had weakened after hitting a three-week high on Monday, when the prospect of a full-blown trade war increased demand for the currency. Traders on Thursday said the dollar needed a fresh impetus or an escalation in the trade tensions to move higher.


In a reminder the dispute has not disappeared, however, the U.S. Trade Representative's office said on Tuesday that the U.S. would begin collecting 25 percent tariffs on another $16 billion of Chinese goods later this month.

Sterling on Thursday continued to slide and hit $1.2842 following a drop to $1.2854 the previous day, its lowest in a year.

The pound is weakening sharply as investors ramp up bets on Britain leaving the European Union without an agreement with Brussels on their future relationship.

A big mover in the G10 currency sphere was the New Zealand dollar, which fell more than 1 percent at $0.6652 , its lowest since March 2016.

The kiwi tumbled after the Reserve Bank of New Zealand (RBNZ) on Thursday unexpectedly committed to keep interest rates at record lows through to 2020 on disappointing economic activity, a dovish turn that caught markets off-guard.

RBNZ Governor Adrian Orr told Reuters in an interview that the central bank will need to make sure it is "blowing wind into sails" of the country's economy for some time yet.

"The reaction to the RBNZ was bigger than we expected. Pushing back the timing of the first hike from ‘far away' to ‘over the rainbow' doesn't seem like such a big deal to me but we've been bearish NZD for a while," said Kit Juckes, a strategist at Societe Generale (PA:SOGN) in London.

Yen strengthens on growing risk aversion

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