Dollar Trades Near Day's High; Yen Wins Out Amid Haven Demand

  • Rebound in Treasury yield diminishes some of yen’s allure
  • Risk-aversion rattles markets, putting EMFX on defensive

The dollar rose for a second day as a round of risk aversion rippled through markets, leaving the yen the star player as it gained versus all of its G-10 peers.

Traders said there was no single driver behind the fresh risk worry, but rather an aggregation of factors, including renewed concern about U.S. trade policy. The Turkish lira and Mexican peso were the biggest loser versus the dollar, days before President Trump meets with Chinese President Xi for what the U.S. leader has described as likely difficult talks.

Weaker-than-expected U.S. auto sales released Monday dampened the outlook for U.S. growth, as did uncertainty about President Trump’s ability to advance his legislative agenda and fiscal stimulus, traders and analysts said. At the same time, the euro was unable to gain fresh impetus. Markets were mindful of political risks in the euro area and the drag of lower euro-area yields, which have subsided in recent days as ECB officials tamp down tapering talk.

  • The dollar held gains vs G-10 peers save JPY, gaining 0.2% as measured by the Bloomberg dollar index.
  • USD/JPY rebounded with the U.S. Treasury 10-year yield after both fell to session lows earlier; the dollar’s drop was cushioned by large bids ahead of 110.00, a trader in London said; JPY has seen demand versus AUD, GBP and even ZAR during the session, said traders in Asia and London familiar with the transactions who asked not to be identified because they are not authorized to speak publicly.
  • JPY is overvalued on model, especially against SEK, PHP, and EUR, according to research firm Quant Insight. Current model has rate differentials and global sovereign risk as biggest drivers across JPY crosses.
  • EUR/USD was trading at about 1.0665 and close to the middle of its narrow 1.0636/75 range, anchored by a large option expiry at 1.0650 that rolls off Wednesday; EUR trading in subdued fashion ahead of presidential debate in France.
  • GBP/USD fell to a fresh low for the day at 1.2419 before finding technical support at its 100-DMA at 1.2417
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