US dollar falls against yen on plunge in US bond yields

[NEW YORK] The US dollar tumbled against the safe-haven yen on Friday as a plunge in benchmark US Treasury yields reduced the attractiveness of US debt and traders expected dovish Federal Reserve policy through this year, while sterling dipped.

The US dollar was last down 0.8 per cent at 102.47 yen, near a session low of 102.44 hit in early trading. The US dollar index, which measures the greenback against a basket of six major rivals, was last down 0.5 per cent at 95.700.

US 30-year Treasury yields hit their lowest since the 1950s, at 2.189 per cent, in a worldwide scramble for bonds on expectations of weak global growth and more policy stimulus from major central banks. Benchmark US 10-year Treasury yields nearly matched their record low of 1.381 per cent.

"Dollar/yen is a highly sensitive yield play, so the plunge in US Treasury yields is boosting the yen," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.

Analysts also said significantly reduced expectations that the Fed would raise rates this year in the wake of Britain's surprise vote last week to exit the European Union hurt the US dollar.

The euro was last up 0.3 per cent against the US dollar at US$1.1132 after hitting a one-week high of US$1.1168 in morning US trading.

"The Brexit situation has completely removed the prospect of further monetary tightening by the Fed for this year at least," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York.

Thin liquidity ahead of the Fourth of July holiday weekend in the United Status exaggerated currency moves, analysts said.

Sterling was last down 0.3 per cent at US$1.3280 after hitting a session low of US$1.3244. While sterling hovered above Monday's 31-year low of US$1.3122 right after the Brexit vote, analysts said the currency was still hobbling on comments that Bank of England governor Mark Carney made on Thursday.

Mr Carney said the central bank would probably need to enact more stimulus over the summer, a signal of further action to offset the Brexit shock. His remarks pushed sterling down as much as 1.6 per cent on Thursday.

For the week, sterling was set to fall about 3.1 per cent against the US dollar after posting its worst week against the greenback since January 2009 last week. Despite Friday's losses, the US dollar was on track to gain modestly against the yen for the first week in three.

REUTERS