FOREX-Yen climbs as U.S. recession gauge flashes red

* Inverted US yield curve sends Japanese yen to day's high
* Chinese yuan weak after one-week jump the day before
* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Updates prices, adds new quotes and context)
By Olga Cotaga
LONDON, Aug 14 (Reuters) - 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 U.S. 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 global markets
after concerns of a U.S.-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 U.S. dollar.
"What this (yield curve inversion) means is that markets are
signalling that central banks are running out of options. Away
from the headlines on the trade war, it points to a bigger
broader picture of major industrial economies such as China and
Germany haemorrhaging growth," said Stephen Gallo, European head
of forex strategy at BMO.
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. Japanese currency strengthened to 106.12 versus the
dollar JPY=EBS , its highest on Wednesday, up 0.6% on the day.
Overnight, it had fallen to a one-week low after U.S.
President Donald Trump backed off his Sept. 1 deadline for
imposing 10% tariffs on remaining Chinese imports, delaying
duties on cellphones, laptops and other consumer goods. The
announcement came after renewed trade discussions between U.S.
and Chinese officials.
China's offshore yuan gave up some of its earlier gains on
Wednesday as weaker-than-expected economic data tempered the
optimism generated by the U.S. 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 U.S.-China trade war.
"No one really believes this is a firm step towards a deal"
between the United States and China, said Neil Mellor, senior
forex strategist at BNY Mellon.
"The market's already moved on...and longer term the yuan
will continue to weaken," Mellor said.
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%
against the dollar to 7.0396 CNH=EBS , still more than seven to
the dollar, the level it reached last week when the 10% tariffs
were announced.
China fixed the onshore yuan at 7.03, "the only sign so far
of China making any concessions" to the United States, said
Esther Reichelt, an analyst at Commerzbank.
Elsewhere, major currencies were little changed. The dollar
index, which is down around 1% since the start of August, was
flat around 97.7 .DXY despite the yield curve inverting.
Same goes for the euro, which was flat at $1.1180 EUR=EBS
after first estimate of second-quarter eurozone gross domestic
product showed growth in the euro area remained stable as
quarter-on-quarter GDP rose 0.2% as expected.
Sterling was slightly higher against the dollar and the
euro, last by 0.2% at $1.2087 and 92.49 pence versus the common
currency GBP=D3 EURGBP=D3 , even though inflation in Britain
was 2.1% in July, above Bank of England's target.
However, current levels in sterling suggest investors aren't
willing to take the British currency away from the deep lows it
reached last week.

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Yuan ticks lower https://tmsnrt.rs/2YNVA6s
China industrial output https://tmsnrt.rs/2YOpAiC
US Treasury curve inverts https://tmsnrt.rs/2YLaA5f
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