Dollar sags vs yen on lower US yields, ebb in risk appetite

Reuters Tokyo | Updated on January 16, 2018 Published on December 29, 2016


The dollar sagged against the yen on Thursday, weighed down by US yields slipping to two-week lows and an ebb in risk appetite that favoured the safe-haven Japanese currency.

The dollar was down 0.4 per cent at 116.800 yen, having come down from a high of 117.815 touched overnight.

Treasury yields fell in the wake of weaker-than-expectedU.S. pending home sales data and a robust debt auction.

The greenback also felt the pressure from the safe-haven yen,which provided a home for funds retreating from the region's riskier assets.

The euro was given breathing space as the dollar weakened against its Japanese peer. The common currency was up 0.2 per cent at $1.0437 after falling to as low as $1.0372 the previous day.

“The dollar looks like it has run its course against the yen for now. But against the euro, the dollar still has room to gain as the pair is now trying to catch up with the widening between US and German yields,” said Masafumi Yamamoto, chief forexstrategist at Mizuho Securities in Tokyo.

The spread between the 10-year US Treasury andGerman bund yields is the widest on recordstretching back to 1990.

The spread has been increasing recently on the divergencebetween European and U.S. central bank policy and outlooks forgrowth and inflation.

The common currency already hit a near 14-year low of$1.0352 last week and analysts expect it to eventually reach parity with the dollar next year. The euro has fallen 3.8 per cent this year.

The dollar index was down 0.2 per cent at 103.080, butstill in reach of a 14-year high of 103.650 struck last week.The index has gained 4.4 per cent this year, the bulk of the risetaking place after the U.S. elections early in November.

The index has climbed on expectations that Donald Trump's incoming administration will boost US growth through fiscal stimulus, which could be accompanied by monetary tightening and higher yields.

Against the yen, the dollar was enroute for a loss of nearly 3 per cent in 2016, although it has rallied more than 10per cent since Trump's election victory.

“While the market collectively may not be focusing on thestory, dollar strength could become a domestic political issuein 2017 should it persist,” wrote strategists at BNY Mellon.

“Should the dollar make substantial gains from here,particularly against the yen, it will be interesting to see howpresident-elect Trump responds given his previous comment.”

Trump earlier in the year had criticised Japan, along with China and Mexico, saying Tokyo has deliberately lowered theyen's value against the dollar.

Sterling was up 0.1 per cent at $1.2239. The pound was still in reach of a two-month low of $1.2201 set overnight amid fresh uncertainty over Britain's Brexit negotiations.

The currency, dogged by Britain's mid-year decision to leavethe European Union, hit a three-decade trough below $1.1500 in October and was on track to lose 17 per cent in 2016.

The Australian dollar was up 0.25 per cent at $0.7195. The Aussie was headed for a decline of 1.2 per cent on the year against a broadly stronger dollar.

The New Zealand dollar fared a little better,having risen 1.4 per cent this year. While the kiwi lost steamtowards the year's end against the rampant dollar, it benefittedfrom New Zealand's sound economic growth and relatively higher interest rates.

Published on December 29, 2016
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