FILE PHOTO: Euro, Hong Kong dollar, U.S. dollar, Japanese yen, pound and Chinese 100 yuan banknotes are seen in this picture illustration, January 21, 2016. REUTERS/Jason Lee/Illustration/File Photo
October 25, 2018
By Vatsal Srivastava
SINGAPORE (Reuters) – The Japanese yen rose against the dollar on Thursday as a rout on Wall Street and weak European and U.S. economic data dented global risk sentiment, sending investors scurrying to safe-haven assets including government bonds.
The yen <JPY=>, seen as a safety-bet during times of market turmoil and economic stress, advanced 0.35 percent at 111.87 on the dollar.
Over the past week, nervousness around U.S. corporate earnings and geopolitical uncertainty added to heightened worries about global growth, Italy’s free spending budget and Sino-U.S. trade tensions.
On Wall Street, the S&P 500 <.SPX> declined for a sixth day in a row as weak forecasts from chipmakers added to concerns about the impact on earnings from tariffs and a slowdown in China’s economy.
Also dampening sentiment, sales of new U.S. single-family homes fell to a near two-year low in September, the latest sign that rising mortgage rates and higher prices were hurting demand for housing.
The grim U.S. session rippled through to Asia with stock markets from Japan to Australia sinking deep into the red.
“I won’t be surprised to see the dollar/yen fall below 112 as U.S. yields have cooled off to 3.1 percent from their recent peak and volatility in developed markets has picked up,” said Rodrigo Cartel, senior currency strategist at NAB.
The dollar, also considered a safe-haven, was on reasonably solid ground against most of its other major rivals.
An index <.DXY> measuring the U.S. currency’s value versus six major peers was only a touch lower in Asia at 96.35, after gaining an impressive 0.5 percent on Wednesday
The euro <EUR=> remained tentative, after giving up almost 0.7 percent on Wednesday – its steepest fall in percentage terms since Sept. 27 on concerns over the pace of economic growth in Europe.
Euro zone business growth slowed more than expected this month, a widely watched Purchasing Managers Index (PMI) survey showed on Wednesday. German private-sector growth fell to its lowest in more than three years, and manufacturing in France hit a 25-month low, according to other surveys.
The European Central Bank (ECB)holds its monetary policy meeting later today, and investors will be looking for any new guidance from the ECB acknowledging the recent slowdown in growth as well as the political stand-off between Brussels and Rome over Italy’s free spending budget.
“Euro has limited upside given risk factors such as the Italian budget, brexit and more recently the softening economic activity,” said Catril.
“Mario Draghi will have to acknowledge weakness in the data and reaffirm that the ECB monetary tightening path is data dependent…risk is that he sounds dovish,” added Catril.
U.S. 10 year treasury yields <US10YT=RR> also fell to 3.1 percent on Thursday as traders started to question the strong cyclical economic growth story of the U.S and rushed to the safety of sovereign bonds.
U.S. 10 year yields have been on an uptrend thanks to a hawkish U.S. Federal Reserve as it looks to raise interest rates by another 25 basis points in December.
The British pound <GBP=> traded marginally higher versus the dollar at $1.2891, after losing 0.78 percent of its value on Wednesday and hitting a six-week low of 1.2865.
British Prime Minister Theresa May’s Brexit plans have stoked uncertainty over recent weeks, especially on the terms of Britain’s exit from the EU.
But May received a show of support from her Conservative Party on Wednesday at a meeting in parliament, shifting the focus away from talk of an imminent leadership challenge over her Brexit strategy.
(Reporting by Vatsal Srivastava; Editing by Shri Navaratnam)
