US dollar weakens vs yen as investors turn cautious

[NEW YORK] The US dollar weakened to a more than six-week low against the yen on Tuesday, dipping below a key technical level as Treasury debt yields slipped on increased caution ahead of a trio of potentially market moving events on Thursday.

Nervous investors piled into low-risk bonds and other safe-haven assets on worries linked to Britain's general election, the European Central Bank's policy meeting and former FBI Director James Comey's testimony before a Senate panel, all scheduled for Thursday.

"I think there's a lot of anxiety ahead of Thursday's events," said Alfonso Esparza, senior currency analyst at Oanda in Toronto.

The US dollar was down 0.92 per cent against the yen at 109.43 yen, having broken below its 200-day moving average to touch 109.23 yen, its lowest since April 21.

"It's safe-haven (demand) as well as the technical break that's driving dollar-yen," said Brad Bechtel, managing director FX at Jefferies in New York.

Mr Comey, fired by President Donald Trump in May, will be grilled by the Senate Intelligence Committee on whether Mr Trump tried to get him to back off an investigation of alleged ties between his 2016 campaign and Russia.

Worries about the situation have added to market doubts over the Trump administration's ability to deliver a promised boost to growth and recently weighed on the US dollar.

The greenback could weaken to as low as 106 yen ahead of Thursday's testimony, Mr Esparza said. The US dollar index, which tracks the greenback against six major rivals, was down 0.24 per cent at 96.567.

The euro was up 0.2 per cent against the US dollar to US$1.1275. The common currency has gained in recent weeks on various factors, including an ebb in French political concerns and upbeat euro zone data.

However, complacency that the ECB will be less dovish has left the euro vulnerable to disappointment if the central bank does not satisfy those expectations, analysts said.

With two days to go until Britain holds a national election, the pound saw choppy trading as opinion polls have shown that Prime Minister Theresa May's lead over the opposition Labor party has ebbed over the last three weeks.

Sterling was down 0.05 per cent against the greenback after falling to as low as US$1.2873 earlier in the session.

Mexico's peso extended gains to a second straight day after the US and Mexican governments reached a new agreement to significantly shift their sugar trade mix.

REUTERS