Yen nurses losses as stocks rally cheers mood, dol­lar eyes data

The Pak Banker - - INTERNATIONAL BUSINESS/SPORTS -

The yen nursed losses against the dol­lar on Thurs­day as calm re­turned to cur­rency mar­kets with gains in global eq­ui­ties, in­clud­ing a5 per­cent jump in Shang­hai, un­der­pin­ning risk sen­ti­ment and sap­ping de­mand for safe haven cur­ren­cies.

Com­ments from an in­flu­en­tial Fed­eral Re­serve of­fi­cial on Wed­nes­day down­play­ing prospects of a Septem­ber in­ter­est rate hike helped im­prove 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 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 per­cent against the yen at 120.24 yen JPY=, and well above a seven-month low of 116.15 yen struck ear­lier this week. The euro was lower against the dol­lar at $1.1285, well be­low this week's seven-month high of $1.1715. The dol­lar in­dex rose 0.3 per­cent to 95.401.

"The fo­cus is shift­ing back to U.S. 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 U.S. data, if it sur­prises on the up­side will give a boost to the dol­lar."

New York Fed Pres­i­dent Wil­liam Dud­ley said on Wed­nes­day an in­ter­est rate hike next month seemed less ap­pro­pri­ate given the threat posed to the U.S. econo- my by re­cent mar­ket tur­moil. Traders said Dud­ley's rel­a­tively dovish tones, com­bined with up­beat data show­ing a big in­crease in U.S. 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 "U.S. In­fla­tion De­vel­op­ments". The mar­ket will be watch­ing to see if cen­tral bankers is­sue more as­sur­ances about keep­ing mon­e­tary pol­icy ac­com­moda­tive es­pe­cially since re­cent mar­ket volatil­ity drove many in­vestors to liq­ui­date their port­fo­lios and raised con­cerns about the global in­vest­ment cli­mate.

With in­vestors push­ing back chances of a Fed hike this year, an­a­lysts said mar­kets should also be pre­pared for the Euro­pean Cen­tral Bank to re­spond by in­creas­ing its as­set pur­chase pro­gram, a fac­tor that should weigh on the euro.

"We are open­ing an op­por­tunis­tic trade rec­om­men­da­tion to be long dol­lar ver­sus the euro. This trade has the same tar­get as our three-month forecast of euro/ dol­lar at $ 1.05," said Thomas Flury, strate­gist at UBS's chief in­vest­ment of­fice.

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