Dollar hits 5-month low vs yen

The dollar dipped to a five-month low against the yen yesterday as rising tensions over North Korea kept the safe-haven Japanese currency in demand. The dollar index against a basket of major currencies was down 0.2 percent at 100.390, weighed down following the release of Friday’s weak US retail sales and consumer prices data and as flight-to-safety drove US Treasury yields to five-month lows.

The US currency extended losses from the previous day and retreated to 108.135 yen, its lowest since mid-November. The yen remained broadly bid against other currencies as well. The euro and the pound slid to five-month troughs of 114.955 yen and 136.05 yen, respectively.

Increasing geopolitical risks another notch, North Korea on Sunday made what was believed to be a failed missile test launch. Regional tensions have risen over the past weeks as US President Donald Trump has taken a tough rhetorical line with Pyongyang. “It is unclear whether the situation over North Korea will escalate into military action, but uncertainty is increasing and the dollar continues to edge lower. The dollar also looks shaky technically, after slipping below the 200-day moving average of 108.80 yen,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

Japan’s proximity to the Korean Peninsula, however, means that the yen’s safe-haven status could be eroded if tensions between Washington and Pyongyang escalated into open conflict. “Right now the markets are still functioning, with the reaction to the situation being weaker equities, lower Treasury yields and the yen firming against the dollar,” said Koji Fukaya, president at FPG Securities in Tokyo. “But it could be an entirely different matter should an international emergency actually take place,” he added, reckoning that the dollar could benefit due to its position as the world’s principal reserve currency.

With the bulk of the market’s focus on how the standoff between the United States and North Korea will play out, the semi-annual US Treasury currency report released late on Friday did not receive as much attention as some had initially expected. — Reuters