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Yen climbs as US recession gauge flashes red

London

THE Japanese yen jumped to the day's high on Wednesday as the United States bond yield curve inverted for the first time since 2007 as investors, gripped by worries of a looming global recession, fled to the safety of perceived safe-haven assets.

An inversion of the US Treasury yield curve - when short-dated bond yields fall more than their longer-dated counterparts - is considered as a classic recession warning and the drop in bond yields sent a chill through markets after concerns of a US-China trade dispute receded somewhat.

The yen, which was already trading stronger on the day, received a further boost and headed towards a near 1-1/2 year high versus the US dollar.

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Data on Wednesday showed that the Chinese economy continued to slow. Industrial output rose in July at the slowest pace in more than 17 years. Elsewhere, slumping exports sent Germany's economy into reverse in the second quarter.

The Japanese currency strengthened to 106.12 versus the dollar, its highest on Wednesday, up 0.6 per cent on the day. Overnight, it had fallen to a one-week low after US President Donald Trump backed off his Sept 1 deadline for imposing 10 per cent tariffs on remaining Chinese imports, delaying duties on several consumer goods.

China's offshore yuan gave up some of its earlier gains on Wednesday as weaker-than-expected data tempered the optimism generated by the US decision to delay tariffs.

The fall in the yuan and the rise in yen mirrored analysts' views that the delay in tariffs, although encouraging, wasn't even close to resolving the US-China trade war.

The offshore yuan had jumped to a one-week high against the dollar on Tuesday after the tariff delay, but it fell back 0.4 per cent against the dollar to 7.0396, still more than seven to the dollar, the level it reached last week when the 10 per cent tariffs were announced. China fixed the onshore yuan at 7.03, "the only sign so far of China making any concessions" to the US, said Esther Reichelt, an analyst at Commerzbank.

Elsewhere, major currencies were little changed. The dollar index, down around one per cent since the start of August, was flat around 97.7 despite the yield curve inverting. Same goes for the euro, which was flat at US$1.1180 after first estimate of Q2 eurozone gross domestic product showed growth in the euro area remained stable as quarter-on-quarter GDP rose 0.2 per cent as expected.

Sterling was slightly higher against the dollar and the euro, last by 0.2 per cent at US$1.2087 and 92.49 pence versus the common currency, even though inflation in Britain was 2.1 per cent in July, above the Bank of England's target. REUTERS