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Yen rises across the board on Brexit worries
[NEW YORK] The safe-haven yen firmed broadly on Monday, hitting a three-year peak against the euro and sterling and a six-week high versus the US dollar on concerns Britain could vote to leave the European Union in a referendum two weeks from now.
The US dollar, meanwhile, struggled across the board due to uncertainty about the outcome of this week's Federal Open Market Committee policy meeting.
The greenback has been underperfoming since the release in early June of a much weaker-than-expected US employment report for May, which has drastically reduced the chances the Fed will hike rates either in June or July.
Sterling, on the other hand, has been primarily influenced by Brexit concerns since late last year and other currencies are starting to feel the impact.
Britain's "Out" campaign widened its lead over the "In" camp ahead of the country's June 23 referendum, two opinion polls published by ICM showed on Monday.
According to the two polls, one online and one conducted by telephone, "Out" held 53 per cent support compared with 47 per cent support for "In."
"Brexit would present the first formal challenge to the current global economic order and could spark a much wider and more dangerous fracture of the European Union," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.
As investors ditched riskier assets, the euro dropped to its lowest against the yen since February 2013. It was last at 119.88, down 0.4 per cent.
Sterling, which was down broadly, also fell to a three-year low of 149.50 yen. The pound last traded down 0.9 per cent at 151.04 yen. Against the US dollar, sterling fell to a two-month low and last changed hands at US$1.4222, down 0.2 per cent.
The US dollar fell against the yen to a six-week trough of 105.75. By late afternoon, the US dollar was down 0.7 per cent at 106.21 yen.
Eric Stein, co-director of Global Fixed Income, at Eaton Vance Management in Boston, believes the Fed will not raise interest rates at the June FOMC meeting. But he said a July rate increase is likely if the US labour market improves and the United Kingdom votes to remain in the EU.
A shortage of US dollars and safe-haven demand for the yen globally are stretching certain US dollar-based rates to levels more associated with periods of extreme stress, raising a red flag for the wider financial system.
The benchmark 3-month US dollar/yen FX basis-swap was last trading at -102.25, the lowest in at least seven years.