Bank of America just raised its EUR/USD forecast
(New throughout; changes dateline, previous LONDON)
By Kate Duguid
NEW YORK, Feb 28 (Reuters) - The Japanese yen hit a
seven-week high against the U.S. dollar and was on track for its
largest daily gain since May 2017 as investors nervous about the
spread of the coronavirus in the United States piled into the
safe-haven currency.
Hopes that the outbreak can be contained in China have been
replaced this week by worries that infections are spreading
around the globe. Measures to contain the virus have wreaked
havoc on supply chains, the world's economy and financial
markets.
Equity markets have tumbled, with the S&P 500 on course for
the worst performance in a week since the 2008 financial crisis,
as investors dumped riskier assets and piled into safe-haven
currencies. That sent the Japanese yen to a seven-week high of
107.77 versus the dollar JPY= , last trading up 1.22%.
"The yen is significantly stronger from where it was even
last week, when I was hearing people saying that the yen wasn't
a safe-haven anymore. We're now back to appropriate levels,"
said Mark McCormick, global head of foreign exchange strategy at
TD Securities.
McCormick said one additional factor supporting the yen
could be the fact that Japan's public pension funds have been
rebalancing assets.
"I think it's pretty clear that the (Japanese Government
Pension Investment Fund) is trading ahead of the announcements
of their weights, which if you think about what they've done
over the past five years, they've created an allocation that
leans much more towards global equities, global credit, global
fixed income - which in this environment would see dollar-yen
rally as they're pushing some of their flows outside of Japan."
Traders were also offloading currencies closely associated
with a possible recession, pushing the Australian dollar AUD= ,
much reliant on China and global economic growth, 1.07% lower to
$0.650, its lowest in 11 years.
Apart from jumping into safe-haven assets, money managers
also tend to reverse out of so-called carry trades in tumultuous
times. In carry trades, investors borrow in low-yielding
currencies like the euro - where interest rates are below zero -
to invest in higher-yielding ones.
With investors pulling out of higher-yielding and riskier
currencies, that has helped the euro soar to a 3-1/2-week high
of $1.105 EUR= . It was last roughly flat at $1.100.
The U.S. dollar index was last down 0.093% to 98.349 =USD .
Against the pound the dollar was down 0.79% to 1.278 GBP= .