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The yen gained against the dollar and other peers on Wednesday on the latest bout of geopolitical tensions stemming from the Korean Peninsula.
North Korea said on Wednesday it is “carefully examining" plans for a missile strike on the US Pacific territory of Guam, just hours after US President Donald Trump told the North that any threat to the United States would be met with ‘fire and fury’.
The dollar weakened against the yen, which is often sought in times of geopolitical tension. The US currency was down 0.4 per cent at 19.865 yen, following a retreat to 109.835, its weakest since mid-June. The South Korean won sank around 0.8 per cent to 1,133.8 to the dollar, its lowest since July 14. The euro was 0.45 per cent weaker at 129.125 yen and the Australian dollar slipped 0.7 per cent to 86.66 yen .
“The market had been complacent for a while regarding headlines from North Korea. So it reacted when the North threatened Guam,” said Mitsuo Imaizumi, chief FX strategist at Daiwa Securities. “Few participants, however, think that North Korea would actually strike Guam at this juncture. So the impact is likely to fade eventually.”
Risk sentiment soured in the financial markets to drive US Treasury yields down and in turn weigh on the dollar. With Asian bourses and US stock futures weakening early on Wednesday, the safe-haven 10-year Treasury yield was last down 3 basis points.
The euro edged down 0.1 per cent to $1.1735. The common currency had lost about 0.4 per cent overnight after news US job openings surged to a record in June reinforced Friday's robust payrolls data and supported the greenback.
The dollar index against a basket of six major currencies was effectively unchanged at 93.633 after touching an 11-day peak of 93.876 overnight. Elsewhere, the retreat by the New Zealand dollar continued, with the kiwi hovering near a three-week low of $0.7319. The kiwi has been on the back foot all week ahead of the Reserve Bank of New Zealand's (RBNZ) policy decision due on Thursday, when it is widely expected to keep interest rates unchanged at a record low 1.75 per cent.
Despite its recent weakening, the New Zealand dollar is still up more than 5 per cent this year, setting a 26-month high of $0.7557 in July. Concerns are that the RBNZ will attempt to jawbone the currency and turn more dovish, reinforcing the need for low rates. The Australian dollar, sensitive to shifts in risk sentiment, was down 0.5 per cent at $0.7876.
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