The Japanese yen dipped on Friday as a downward spiral in US Treasury yields slowed and risk appetite recovered, but the currency was still on course for its greatest weekly gain since November. Bonds have rallied this week, with 10-year U.S. Treasury yields falling as much as 20 basis points to a February low, while stocks have taken a beating around the world amid growing fears that the fast-spreading Delta variant of COVID-19 could derail a recovery that is already showing signs of weakness.
While perceived safe-haven currencies such as the yen and the franc fell by 0.3 percent against the dollar in early London trading, the yen remained on track to gain 0.9 percent this week, the most since early November.
“Today’s dip in the dollar-yen is reversing along with risk appetite in stocks, implying no larger spillover effects across markets for the time being – the same trend is visible in the US 10-year yield recovering back above 1.3 percent,” said Steen Jakobsen, Saxo Bank’s chief investment officer.
“This week’s market movement reflects a technical risk-off, with more reflation positions being repositioned.”
On July 15, the People’s Bank of China (PBOC) announced on its website that it would reduce the reserve requirement ratio (RRR) for all banks by 50 basis points (bps).
Following the statement, China’s yuan remained relatively stable, albeit it looked to hasten the rebound in risk appetite, with the Australian and New Zealand currency nudging higher.
The Australian dollar rose over half a percent on the day to US$0.7462, after hitting a new low for the year at US$0.7410 earlier in the day. On Thursday, it dropped by 0.7 percent. The New Zealand kiwi rose 0.4 percent to US$0.6968. In the previous session, it had dropped more than 1%. The euro gained more than 0.1 percent to US$1.1861 on top of a 0.45 percent advance on Thursday.
The dollar index dropped about 0.1 percent to 92.284.
Given the strength of the dollar, Mark Dowding, chief investment officer at BlueBay Asset Management, remarked that there appears to be an ongoing “cleaning” of consensus positioning.
“Over the past few months, it appears that the consensus has tended to keep bets on higher rates, steeper curves, and a weaker dollar, with many investors being caught on the wrong side of recent developments,” he added.
According to data released on Thursday, the number of Americans submitting new jobless claims increased unexpectedly last week, indicating that the labor market’s recovery from the COVID-19 outbreak is still turbulent.
(Saikat Chatterjee and Ritvik Carvalho contributed reporting; Nick Macfie, William Maclean, and Kirsten Donovan edited the piece.)/n
