Euro slips as bund yield turn negative, Fed in focus as Brexit looms

[TOKYO] The euro nursed losses against the dollar early on Wednesday, dragged down after the benchmark German bond yield turned negative for the first time as markets braced for the Federal Reserve's policy decision amid heightened worries over Brexit.

The euro was little changed at US$1.1210 after sliding 0.8 per cent overnight to an 11-day low of US$1.1189.

Concerns about Britain opting to leave the European Union in a referendum next week continued to influence the mood in global markets. Germany's 10-year bund yield turned negative for the first time on Tuesday after a series of polls showed a big lead for the "leave" camp.

The euro, on the other hand, fell against the safe-have yen, which has been bolstered recently on mounting Brexit fears. The common currency was steady at 118.85 yen after falling to 118.51 overnight, its lowest since January 2013.

The yen also remained on the front foot against the dollar, although the US currency drew a bit of a reprieve on Tuesday's upbeat May US retail sales data.

The dollar was little changed at 106.03 yen, having pulled back from an overnight low of 105.63. A drop below 105.55 would take the greenback to its lowest level since October 2014.

In addition to safe-haven bids for the yen, the dollar has been dragged lower against its Japanese counterpart as prospects of the Fed raising rates this month have been dashed by soft US data, notably the much weaker-than-expected May non-farm payrolls report.

The Fed concludes its two-day Federal Open Market Committee (FOMC) meeting later on Wednesday.

"The likelihood of the Fed hiking interest rates will be very low while Brexit worries dominate action in the financial markets," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.

"That said, the FOMC meeting will still garner attention as it will give the market a chance to gauge the Fed's stance on rate hikes at the July meeting and beyond."

The Australian dollar was more or less stable, partially shielded as their relatively high interest rates helped offset some of the turbulence from ongoing risk aversion.

The Aussie traded at US$0.7351, within reach of a one-month high of US$0.7505 touched last week when the Reserve Bank of Australia (RBA) appeared less dovish than some had expected.

REUTERS