Safe-haven currencies retreat as US, Iran ease off

London

SAFE-HAVEN currencies such as the Japanese yen retreated on Thursday as the United States and Iran backed away from further conflict, with markets flipping back to a more risk-taking approach on hopes of a US-China trade deal.

US President Donald Trump responded overnight to an Iranian attack on US forces with sanctions, not violence. Iran offered no immediate signal it would retaliate further to a Jan 3 US strike that killed one of its most senior military commanders.

The yen, seen as a safe haven in times of geopolitical turmoil because of its deep liquidity and Japan's current account surplus, quickly reversed its gains made after Wednesday's missile strike. It was last down 0.2 per cent at 109.36.

"Markets are brushing aside fears of a major escalation in US-Iranian conflict," said Société Générale's strategist Kit Juckes. "The Japanese yen is the biggest FX loser." The dollar, also seen as a safe choice to park money in times of turmoil, fell against other major currencies.

The greenback was down 0.1 per cent versus the euro as euro/dollar traded at US$1.1115 and by the same magnitude versus the pound, last trading at US$1.3112.

The euro was also rising against the Swiss franc, another safe-haven, by 0.2 per cent to 1.0833.

Traders' focus is expected to shift back to the global economy, with expectations that the US and China will sign a trade deal next week providing underlying support for risk assets.

Investors think the deal will clear one of the world economy's biggest uncertainties and help boost global growth this year, although some think that view is too optimistic.

China's yuan rose to a five-month high of 6.9175 against the dollar overnight in the offshore market, boosted also by a steady inflation readout.

Moreover, Chinese factory-gate prices fell at a slower pace in December, giving Beijing room to stay on course on monetary easing as economic growth cools. Some investors have worried that consumer inflation, hovering near eight-year highs, could make China's central bank, the People's Bank of China (PBOC), more cautious about further stimulus.

"A trade deal, falling inflation ... combined with past and current PBOC easing, should over the next few months help the Chinese economy," said Nordea strategist Sebastien Galy. Traders will be watching the euro zone November jobless rate and US jobless claims. REUTERS