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US dollar clings on above 4-month low vs yen; eyes on North Korea tensions

[SINGAPORE] The US dollar edged higher against the yen on Monday, trading above last week's near four-month low, with rising tensions between the United States and North Korea seen as the key to the near-term outlook.

In addition to worries over geopolitical risks, the US dollar came under pressure on Friday after softer-than-expected inflation data for July dampened expectations for another Federal Reserve interest rate hike this year.

The US dollar inched up 0.1 per cent to 109.29 yen, edging away from Friday's low of 108.72 yen, the greenback's lowest level since April 19.

Heightened tensions between the United States and North Korea, which triggered falls in riskier assets last week, are seen likely to remain a focal point for markets in the near term.

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"This uncertainty isn't going to disappear immediately," said Masafumi Yamamoto, chief currency strategist for Mizuho Securities in Tokyo.

"The dollar is now close to the bottom of a 108 yen to 115 yen range. If tensions escalate further, then there would be an increased risk of a drop to levels below 108 yen," he said.

The US dollar has traded roughly between 108 yen and 115 yen in the past several months, and has support on technical charts at 108.13 yen, the low struck on April 17.

A drop below that level would take the dollar to its lowest levels since last November, and analysts say its fall might pick up steam if it breaks below the 108.00 yen level.

The yen showed limited reaction to data on Monday showing that Japan's economy expanded at an annualised rate of 4 per cent in April-June, the fastest pace of growth since January-March 2015.

The yen had gained a lift last week after US President Donald Trump warned North Korea that it would face "fire and fury" if it threatened the United States. That prompted North Korea to say it was considering firing missiles at Guam, a US-held Pacific island.

The Swiss franc and the yen are often sought in times of geopolitical tension or global financial stress, partly because both Switzerland and Japan have big current account surpluses. Japan is the world's biggest creditor nation and there is an assumption that Japanese investors would repatriate their foreign holdings in times of heightened global uncertainty.

The US dollar index, which measures the greenback against a basket of six major currencies, held steady at 93.096, after slipping around 0.3 per cent on Friday.

Subdued US inflation data released on Friday added to doubts as to whether the Fed would raise interest rates again this year, weighing on the US dollar.

Friday's data showed the US consumer price index edged up just 0.1 per cent last month after it was unchanged in June. Economists polled by Reuters had forecast the CPI rising 0.2 per cent in July.

The euro edged up 0.1 per cent to US$1.1824.