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3 Minutes to Read (Reuters) – LONDON (Reuters) – On Thursday, investors abandoned risky currency holdings in a broad-based unwinding by some hedge funds, sending the euro higher across the board. The Japanese yen was on course to post its greatest daily advance this year. PHOTO FROM THE FILE: This artwork from May 26, 2020 depicts a US dollar currency. REUTERS/Dado Ruvic/Illustration/File Photo/File Photo REUTERS/Dado Ruvic/Illustration/File Photo/File Photo After a strategy review that was generally expected by markets, the European Central Bank set a new inflation target and claimed a role in combating climate change on Thursday, the single currency held on to earlier gains. Following the release of minutes from the Federal Reserve’s most recent meeting, a selloff in Asian stocks intensified, reinforcing demand for the safe-haven appeal of government debt and safe-haven currencies. While the dollar initially climbed in early London trading, the euro spiked across the board as the selloff accelerated as hedge funds liquidated some of their big bets against the single currency versus other majors. The euro rose 0.4 percent versus the dollar to $1.1838, while it gained 0.6 percent against the British pound to 85.98 pence. “This is a textbook unwind of hazardous positions in currency markets,” a trader at a U.S. bank in London said, “with yield chasing trades reversing and flows reversing from current account deficit countries to surplus nations.” While the unwinding of the reflation theme seen in global bond markets this week was widely blamed on minutes from the US Federal Reserve’s June policy meeting confirming it was moving toward tapering its asset purchases as soon as this year, some traders saw the selloff as an extension of the unwinding of the reflation theme seen in global bond markets this week. “The risk off trend is obvious across all markets,” said John Marley, CEO of forexxtra, a London-based FX consultancy. “Especially in currencies with the strongest risk DNAs, such as the Australian dollar, Canadian dollar, and New Zealand dollar.” “It appears as if this is a washout of positions that might have genuine potential in a market that has already seemed quite thin this week,” he added. The Australian dollar dropped 0.8 percent to $0.7420, its lowest since mid-December. The safe-haven Japanese yen rose 0.8 percent to 109.8, setting a new high for a single day since early November 2020. The dollar index, which compares the US currency to six other currencies, slipped 0.2 percent to 92.54 on Thursday, after reaching 92.844 for the first time since April 5. According to a Reuters poll, the Fed is expected to disclose a strategy for tapering its asset purchases in August or September. While the majority of respondents believe the first cut to its bond-buying program would happen early next year, nearly a third believe it will happen in the fourth quarter of this year. Graph: Japanese yen – Saikat Chatterjee contributed reporting; Angus MacSwan and Kirsten Donovan edited the piece./nRead More

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