Yen hits 1-month low as Omicron concerns ease

Tokyo

THE yen retreated to a near 1-month low to the US dollar on Tuesday (Dec 28) as safe-havens fell out of favour after Wall Street's rally to a record high consigned Omicron concerns to the background.

The Japanese currency weakened as far as 114.935 yen per dollar for the first time since Nov 26 before recovering to last trade around 114.80, helped by a decline in long-term Treasury yields.

The dollar, also considered a safe-haven, continued to hover above the bottom of its recent trading range versus a basket of peers. It received only limited support from expectations that the Federal Reserve could raise interest rates as early as March.

The dollar index, which measures the currency against 6 major rivals, was little changed from the previous session at 96.078.

The S&P 500 ended at a record high on Monday after strong US retail sales data eased worries that the highly infectious Omicron coronavirus variant would scupper the economic recovery.

Money markets are pricing better than 50 per cent odds for a first quarter point rate hike by March and are close to fully priced for 3 increases by December 2022 after Fed officials signalled a faster pace of tightening at their policy meeting this month.

"Markets globally are optimistic" that the fallout from Omicron will be contained, said Osamu Takashima, head of G10 FX strategy at Citigroup Global Markets Japan.

The fact that US equities rallied despite expectations for faster Fed tightening "implies that currently, investor risk appetite must be very, very strong", he said.

The yen is likely to test its 2021 low of 115.525 in the near term, he predicted.

Sterling, which often rises when risk sentiment improves, hovered not far from the 1-month high of US$1.3445 reached overnight.

The Australian dollar, often considered a liquid proxy of risk appetite, inched up back towards a 3-week high of US$0.6850 reached on Friday.

The euro consolidated near the top of its range against the dollar this month, little changed from Monday at US$1.13255. REUTERS