Yen Extends Gain as North Korea Tensions Overwhelm Dollar Bulls

  • Leveraged accounts buy yen for dollars, Asia-based trader says
  • Geopolitics helps ‘bid tone’ in Treasury yields, yen: NAB

Safe Havens Pummeled, Gold and Yen Weaken

The yen rose for a second day as Tuesday’s missile test by North Korea prompted responses from the U.S. and its allies, fueling demand for safer assets.

Leveraged accounts bought yen for dollars as South Korea and the U.S. held a missile drill in response to North Korea’s rocket launch, an Asia-based currency trader said. Treasury yields fell as trading resumed after the Independence Day holiday, while gold advanced. The dollar weakened as investors awaited minutes of the Federal Reserve’s June meeting.

“Geopolitics is back in front of investors’ minds, helping the bid tone in Treasury yields and yen,” said Rodrigo Catril, a currency strategist at National Australia Bank Ltd. in Sydney. Expectations for further U.S. rate increases and stronger economic data were setting the stage for higher Treasury yields and the dollar’s advance against the yen, “but the outlook has now been hampered by tensions in the Korean peninsula,” he said.

  • USD/JPY drops 0.3% to 112.93 after declining 0.1% Tuesday
    • Clients see topside risks to spot not in play given U.S. holiday Tuesday and heavy exporter selling at 113.50 in the short term, according to an Asia-based FX trader
  • EUR/JPY falls 0.3% to 128.34
  • Treasury 10-year yield slips 3bps to 2.32%
  • U.S. Secretary of State Tillerson called North Korea’s ICBM launch on July 4 a “new escalation of the threat” to the U.S. and its allies that would be brought before the UN Security Council
    • Security Council plans a closed session Wednesday afternoon
  • BBDXY falls 0.1%
    • Investors will look for clues in Fed minutes on whether policy makers will start to reduce the balance sheet before another rate increase

Some information comes from an FX trader familiar with the transactions who asked not to be identified because the person isn’t authorized to speak publicly

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