Safe-haven currencies jump after US air strike in Iraq

[LONDON] Safe-haven currencies such as the Japanese yen jumped to their highest in months on Friday after US air strikes in Iraq killed two military officials.

US Treasuries, oil prices and gold rallied after an Iraqi militia spokesman told Reuters that Iranian Major-General Qassem Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis were killed in the attack.

The Pentagon confirmed the strike, saying Gen Soleimani was actively developing plans to attack Americans in Iraq and the Middle East.

The Japanese yen hit a two-month high of 107.92 against the US dollar and was last up 0.5 per cent on the day.

The yen is often seen as a haven from risk, given Japan's status as the world's largest creditor nation. A holiday in Tokyo also made for thin conditions, exaggerating the move.

The rise in the yen sparked a sell-off in the South African rand, which shed nearly 2 per cent of its value against the US dollar , as well as a spike in the Hong Kong dollar, which rose to a 2-1/2-year high.

When investors become risk averse on the back of a risk event in the markets, they tend to offload current positions. Until recently, traders have been long the South African rand and short the Hong Kong dollar, so "whatever the positioning is out there tends to be liquidated", said Neil Jones, head of European hedge fund sales at Mizuho.

"I expect the short-term risk off to remain intact," Mr Jones said.

The Swiss franc, another currency perceived as safe, surged to a four-month high of 1.0824 against the euro. The US dollar hit a one-week high versus the euro.

Ten-year US government bond yields fell to their lowest in three weeks at 1.795 per cent, after trading as high as 1.946 per cent the day before. Bond prices rise as yields fall.

Jeremy Stretch, head of currencies as CIBC, said the fall in US yields showed a reversal of the optimism seen on Thursday.

Market participants are now calculating the risk of retribution from the Iranian side, he said. "We are still waiting and watching to see whether there is going to be (the) dynamic reaction that the initial headlines suggest."

A stronger dollar sent the pound down 0.6 per cent to $1.3058 and 0.2 per cent lower against the euro at 85.19 pence.

REUTERS