The yen falls to new five-year lows; COVID-19 damages China’s yuan
The yen falls to new five-year lows;  COVID-19 damages China’s yuan

The yen falls to new five-year lows; COVID-19 damages China’s yuan

A Japanese yen note is seen on this illustration taken June 1, 2017. REUTERS / Thomas White / Illustration

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  • US dollar edges lower
  • The yen hits the new five-year low level vs. dollars
  • Aussie down, pound and euro up

LONDON, March 14 (Reuters) – The dollar index fell on Monday and the yen hit new five-year lows as global markets saw some resurgence of risk appetite and investors prepared for central bank meetings this week in the US, UK and Japan.

After uncertainty about the war in Ukraine led to a market sale on Friday, stock markets rose on Monday and commodity prices fell again. Read more

Analysts attributed the revival of risk-taking to the fact that Russian and Ukrainian negotiators hinted at progress in the peace talks. Read more

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The dollar index rose during trading in Asia and came close to the highest level in 22 months as yield-sensitive short-term US government bonds rose but then fell lower as European markets opened, falling 0.1% on the day to 98.9 at 1255. GMT.

“We have seen a slightly more risk-oriented start to the week, although the willingness to take risks and that optimism are disappearing, and therefore I think the flight to security in the form of dollars will generally remain in play,” said Jeremy Stretch, head of G10 FX strategy at CIBC Capital Markets.

The foreign exchange markets were also driven by expectations that the US Federal Reserve will raise interest rates at its meeting this week, which ends on Wednesday.

Investors priced a 93% chance of a 25 basis point increase.

Federal Reserve Chairman Jerome Powell last week announced several rate hikes this year.

The US dollar hit a five-year high against the Japanese yen at 118.06 last night as investors bet the Bank of Japan, which meets on Friday, will maintain its dove-like stance despite rising inflationary pressures. Read more

With the divergent political expectations between the Fed and the BoJ, the tension between US and Japanese government bonds widened – a development that CIBC’s Stretch called “a good leading indicator of the dollar’s outperformance versus the yen.”

“Japanese investors will look at this interest rate differential and see that there is an opportunity to try to take advantage of investing in high-yield government securities,” Stretch said.

ING FX strategists said the yen also lost due to the impact of higher fuel prices on Japan’s trade balance.

The British pound was still close to a low of 16 months, up 0.2% on the day, ahead of the Bank of England meeting on Thursday.

The euro rose 0.5% to $ 1.09545.

The Australian dollar fell 0.6%, hurt by commodity price easing, while the New Zealand dollar fell 0.1%.

The yuan weakened during lockdown measures to limit the spread of COVID-19 in China.

The dollar hit 6.3828 versus the offshore yuan, the yuan’s weakest in more than a month.

China has reported more local symptomatic COVID-19 cases so far this year than it recorded throughout 2021, as the highly transmissible Omicron variant triggers outbreaks from Shanghai to Shenzhen. Read more

“The Chinese yuan is beginning to feel the declining pressure due to persistent bad news for the economy,” Commerzbank senior economist Hao Zhou wrote in a customer note. “China is also facing intensified pressure from the West to clarify its position on the Ukraine war.”

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Reporting by Elizabeth Howcroft Editing by Raissa Kasolowsky and Will Dunham

Our standards: Thomson Reuters trust principles.

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