Safe-haven currencies in demand amid US-Iran tension

London

THE yen and other safe-haven currencies were in demand on Monday, along with assets such as gold, as investors fretted that the killing of Iran's most prominent military commander by the United States could trigger a broader Middle East conflict.

The moves extended a flight to safety that began on Friday after Iranian Major-General Qassem Soleimani was killed in a US drone strike on his convoy at Baghdad airport.

The Japanese yen surged on Monday to a three-month high of 107.77 versus the US dollar in Asian trading and was last up 0.2 per cent on the day at just below 108.

Spot gold was 1.6 per cent higher, at an almost seven-year high, and oil rose on fears that any conflict in the region could disrupt global supplies.

The Swiss franc, another safe-haven currency, was little changed close to the four-month high of 1.0824 it reached against the euro on Friday.

Bitcoin, which some see as a digital gold, has also risen, hitting a two-week high of US$7,580.

Implied volatility gauges in euro/dollar, the most traded currency pair, were relatively calm, suggesting investors are not yet fleeing to add protection to their portfolios by buying currency options.

A currency volatility index developed by Deutsche Bank was only marginally higher and still close to its lowest levels on record.

Currencies sensitive to global risk appetite were weaker, including the Australian dollar, New Zealand dollar and Swedish crown.

"Iran is almost certainly to respond in some scale, scope and magnitude," said Lee Hardman, currency analyst at MUFG.

Therefore "market participants are likely to remain nervous until there is more clarity over how geopolitical tensions between the US and Iran will proceed," he said, noting that geopolitical tensions could hurt global economic growth, especially if the price of oil increases.

So far, however, oil-related currencies such as the Canadian dollar, Norwegian crown and Russian rouble have not strengthened, even though Brent crude topped US$70 on Monday for the first time since September.

The dollar was 0.2 per cent lower against six major currencies and down 0.4 per cent against the euro at US$1.1196.

Elsewhere, the British pound was trading up 0.7 per cent at US$1.3160 and up 0.4 per cent at 85.04 pence against the euro ahead of a crucial week when British lawmakers are due to reconvene to debate the EU divorce deal Prime Minister Boris Johnson has agreed with Brussels. REUTERS