FOREX-Yen gains from August turmoil; yuan set for worst month since 1994

Published 30/08/2019, 12:58
© Reuters.  FOREX-Yen gains from August turmoil; yuan set for worst month since 1994
EUR/USD
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USD/JPY
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* Euro remains weak after eurozone inflation data

* Sterling stable

* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

(Adds new context, chart and updates prices)

By Olga Cotaga

LONDON, Aug 30 (Reuters) - The Japanese yen rose on Friday

and is on track for its biggest monthly gain in three months as

a global rush to perceived safe-haven assets sapped investor

appetite on stock markets.

August was a particularly bad month for equities as

international trade tensions and fears over the global economy

encouraged investors into bonds and gold, perceived as safer

bets in times of economic and political strife.

The yen, which typically gains during periods of economic

and geopolitical uncertainty, edged 0.1% higher against the

dollar JPY=EBS to 106.39 yen. It is up more than 2% in August

for its biggest monthly gain since May.

The gains were fuelled by a global rally in government debt,

with yields in major developed markets pushing deeper into

negative territory. For a graphic, click "Trade war thus far caused lower rates, not recession," Bank

of America Merrill Lynch strategists, led by Michael Hartnett,

said in a report.

Washington is due on Sunday to start imposing 15% tariffs on

$125 billion of goods from China, affecting consumer items from

smart speakers to sneakers.

Investors fear the intensifying trade dispute could lead the

U.S. economy into recession - a scenario that looks more likely

after the U.S. bond yield curve inverted this week. Inverted

yield curves are widely considered highly reliable indicators of

recession.

"The talking point is still the U.S. yield curve inversion

and whether the U.S. economy heads into a recession ... In

short, the atmosphere is not so good," said State Street's Tokyo

branch manager Bart Wakabayashi.

FRAGILE EURO

The euro, meanwhile, plunged to a one-month low against the

dollar as investors looked for aggressive easing by the European

Central Bank and ignored doubts among some policymakers over the

need for more stimulus.

Poor euro zone economic data on Thursday reinforced views

that the ECB would cut its benchmark interest rate and announce

a new round of quantitative easing at its September meeting.

German inflation slowed in August and unemployment rose,

providing further evidence that Europe's largest economy is

slowing.

More broadly, year-on-year inflation in the entire euro area

was unchanged at 1% in August, but that failed to make an

impression on the common currency.

Christine Lagarde, the ECB's next president, said the

central bank still has room to cut rates if necessary, though

divisions clearly remain within the ECB. The euro was down 0.1% at $1.1043 EUR=EBS after falling to

$1.1033, its lowest since Aug. 1. It has shed nearly 12% against

the dollar since the start of last year.

Elsewhere, the pound stabilised despite growing probability

of Britain crashing out of the European Union on Oct. 31 without

a divorce deal.

British Prime Minister Boris Johnson, a Brexiteer, received

royal approval this week to suspend parliament for a month,

which analysts identify as a move to dodge a possible

no-confidence vote in his government and strenghten his

negotiating hand in Brussels. GBP/

Sterling's reaction, however, was fairly modest, remaining

quite a way off the 2-1/2-year low of $1.2015 reached this

month.

An index that tracks the dollar against a basket of six

other currencies was flat at 98.557, down from a one-month high

of 98.609 in Asian trading .DXY . The dollar was supported by

investors repositioning funds in their portfolios, analysts

said.

"The dollar is getting bid from month-end flows, but the

euro side of the equation is compromised by what appears to be a

set of lacklustre economic data in the eurozone," said Jeremy

Stretch, head of G10 forex strategy at CIBC Capital Markets.

"This opens a debate of how aggressive the ECB" may be in

the coming months, Stretch said.

Money markets are pricing in 15 basis points of rate cuts at

the next ECB meeting on Sept. 12, pushing rates further into

negative territory.

Focus is also moving to weekend data from China, especially

its official manufacturing survey, which is expected to show

factory activity contracted in August for the fourth straight

month.

The yuan is set for its biggest monthly decline since 1994.

It has lost about 3.7% against the dollar CNH=D3 after trading

as low as 7.185 this month.

Euro downward trajectory intensifies further https://tmsnrt.rs/2PpNVr1

Monthly FX performance https://tmsnrt.rs/2Pn7gsF

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