Dollar, yen up as investors shun risk

LONDON - The dollar rose and the yen gained broadly on Wednesday as investors shied away from riskier assets on concerns about China tightening lending and U.S. monetary and political wrangling.

By (Reuters)

Published: Wed 27 Jan 2010, 5:34 PM

Last updated: Mon 6 Apr 2015, 4:46 AM

European shares fell some 1.0 percent in early trade following losses in Asia and on Wall Street overnight.

“Concerns over China and Greece are still in the background. The uncertainty all this suggests is likely to keep risk on the back foot,” said Gavin Friend, currency strategist at National Australia Bank.

“I think equities have further to go on the downside and the period of pessimism can continue.”

By 0841 GMT, the euro was down 0.5 percent at 125.50 yen after hitting a 9-month low of 125.25 yen.

Market players said the next downside target could be levels near its April 2009 low of 124.38.

“Euro/yen and Aussie/yen in particular are vulnerable to a more disorderly decline should we see further weakness, given Japanese margin accounts on the Tokyo Financial Exchange were holding near record longs on these two crosses as of Friday,” analysts at RBC Capital Markets said in a note.

The yen also rose 0.3 percent against the dollar at 89.34 yen, after hitting a 6-week low of 89.14 yen on trading platform EBS.

News of artillery fire between North and South Korea also helped the yen, which stemmed from a dip in South Korean shares.

The euro remained under pressure, hitting a 6-month low against the dollar, hurt by concerns about peripheral euro zone countries’ fiscal situation as well as a warning from a senior EU official that the euro was “overvalued”.

Eurogroup head Jean-Claude Juncker told French business daily Les Echos he was unhappy with imbalances that have produced an overvalued euro and an undervalued U.S. dollar and Chinese yuan.

Portugal said in its draft 2010 budget on Tuesday it plans to cut its fiscal deficit by 1 percentage point to 8.3 percent of gross domestic product this year. The reduction will start from a wider-than-expected deficit of 9.3 percent for last year.

German consumer inflation data is due out later in the day.

The euro fell 0.2 percent to $1.4037 from late U.S. trading on Tuesday, after hitting a low of $1.4022.

FED, Obama eyed

The U.S. Federal Reserve will conclude a two-day policy meeting against the backdrop of a Senate debate over Chairman Ben Bernanke’s reconfirmation. The meeting is expected to yield few policy shifts, with a Fed statement on the economy and interest rates expected later in the day

Markets are also focusing on U.S. President Barack Obama’s State of the Union address, where he is expected to outline spending controls to rein in the budget deficit. Last week, Obama proposed sweeping reforms to curb risky lending by banks, which spooked financial markets.

“The Obama address will be clearly watched. Markets will be quite cautious and clearly something will be said on bank regulation which will not be positive,” said NAB’s Friend.

The dollar index rose 0.2 percent to 78.622. Investors remained nervous China’s tightening measures could curb growth and demand for exports from other economies.

The Industrial and Commercial Bank of China, the country’s largest bank, said on Wednesday it has stopped rolling over some loans to slow credit growth after a surge at the start of the year, though it will not halt new lending.

The Australian dollar trimmed gains against the U.S. dollar after a rise in consumer prices, reinforcing views the Reserve Bank of Australia will raise rates next week.

It was down 0.2 percent on the day at $0.8967.

The Aussie also dipped below 80 yen, its lowest since mid-December last year.

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