Dollar rises against yen as fears over North Korea abate
THE DOLLAR hit an eightweek high against the yen yesterday as US central bank policymakers met to discuss further monetary tightening, with renewed calm over North Korea easing demand for perceived safe havens.
The yen also slid to a 21-month low against the euro. The yen gains in times of crisis, because Japan is the world’s largest creditor nation and benefits from speculation about the repatriation of Japanese money from overseas.
Another safe haven, the Swiss franc, hit a multi-year low against the euro, and analysts said this trend would continue as long as the US favoured a diplomatic solution to the North Korean crisis.
“(US President Donald) Trump is erratic, and there have been conflicting signals from people in his administration, but, as long as the market is confident the US approach is going to remain diplomatic, the movement will be away from safe havens,” said Jane Foley, a senior foreign exchange strategist at Rabobank in London.
Investors are preparing for potentially more hawkish statements from the Federal Reserve when its two-day policy meeting ends today, particularly after the Bank of England (BoE) surprised investors last week with talk of a possible rate hike.
The Fed is widely expected to announce that it will start paring its balance sheet, with the reductions seen likely to start this year.
It is expected to keep rates on hold, but investors will be watching for fresh hints on the chances of another rate rise this year and how many could be expected in 2018.
The dollar climbed to ¥111.88 (R13.29) yesterday, its highest level since July 26, but by 10.55am had edged back to ¥111.61.
The yen has shown little reaction to the possibility of Japanese Prime Minister Shinzo Abe calling a snap election for as early as October to take advantage of improved approval ratings and disarray in the main opposition party.
The euro traded at ¥134.16, up more than0.5 percent against the Japanese currency and at its highest since December 2015.
The single currency also hit its highest level against the Swiss franc since January 15, 2015, when the Swiss central bank dropped the franc’s cap against the euro.
Sterling steadied above $1.35 (R17.86), recovering some ground after a nearly 1 percent slide on comments from the BoE’s governor, Mark Carney, who said on Monday that interest rate rises would be limited and gradual.