Yen nurses losses as stocks rally cheers mood

Reuters London | Updated on January 23, 2018 Published on August 27, 2015


The yen nursed losses against the dollar on Thursday as calm returned to currency markets with gains in global stock markets, including a 5 per cent jump in Shanghai, underpinning risk sentiment and sapping the demand for safe haven currencies.

Comments from an influential Federal Reserve official on Wednesday downplaying the prospects of a September interest rate hike helped improve the market sentiment. In the currency market, investors reacted by unwinding recent moves that had lifted both the yen and the euro.

A recent spike in risk aversion had triggered short-covering in the yen and the euro, which are popular funding currencies for carry trades. Such trades involve selling low-yielding currencies to buy higher-yielding currencies and assets.

Demand for the yen and the euro showed signs of ebbing, however, with the dollar rising along with global stock markets. Traders said any upward revision to second-quarter growth data out of the United States later in the day, could bolster the greenback.

The dollar was up 0.3 per cent against the yen at 120.24 yen , and well above a seven-month low of 116.15 yen struck earlier this week. The euro, too, was up 0.4 per cent at 136.10 yen, while against the dollar it was flat at $1.1320, well below this week’s seven-month high of $1.1715.

The dollar index edged up to 95.223.

“The focus is shifting back to US data and central banks. The market is looking for more dovish comments from central banks to counterbalance the tensions stemming from China,’’ said Manuel Oliveri, currency strategist at Credit Agricole.

“Incoming US data, if it surprises on the upside will give a boost to the dollar.’’

New York Fed President William Dudley had said on Wednesday an interest rate hike next month seemed less appropriate given the threat posed to the US economy by the recent market turmoil.

Traders said Dudley’s relatively dovish tones, combined with upbeat data showing a big increase in US business investment plans have helped soothe market nerves.

A focal point for investors is an annual conference in Jackson Hole, Wyoming, attended by many of the world’s top central bankers. On Saturday, Fed Vice Chair Stanley Fischer will take part in a panel discussion on “US Inflation Developments’’.

The market will be watching to see if central bankers play down ‘the recent market volatility as a headwind, analysts at DBS in Singapore said in a note.

“They will probably agree that the problem today is not in the advanced economies but the emerging economies,’’ DBS said.

“If so, the dollar index can regain some of its composure if the symposium succeeds in keeping expectations intact for a Fed hike later this year without more panic in the markets,’’ they added.

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Published on August 27, 2015
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