Forex trends Friday: Market ructions and economic worries push yen higher

Japanese sumo wrestling pens at Daiso

The yen continued to trade on the strong side on Thursday, although it retraced some of its gains during the session, amid market volatility and concerns U.S. economic growth is slowing.

The dollar/yen was at 107.625 at 8:08 A.M. SGT after trading in a 106.493 to 108.304 range on Thursday, according to DZHI data.

Analysts pointed to safe-haven plays driving the yen higher.

“JPY strengthened on the back of safe haven qualities as worries on the global economy intensified following a weak Chinese PMI (showing contraction for the first time in 19 months) and the first earnings warning from Apple since June 2002 (mainly due to lower sales in China),” Karl Steiner, chief quantitative strategist at SEB, said in an emailed note on Thursday.

“[Thursday’s] U.S. Institute of Supply Management (ISM) economic data is the weakest since late 2016 and will probably add to the sour mood,” he added.

Other analysts were also expecting the yen to keep flexing its muscles.

“A sharp fall in the US manufacturing ISM, an earnings forecast downgrade from Apple and collapsing inflation expectations are all weighing on sentiment. We expect the yen to be the pick of the major currencies again in 2019 as a whole, even if it has moved too fast so far,” Societe Generale said in a note on Thursday.

“Credit spreads are wider than they’ve been since 2016. The Vix has spiked and risk is off. The yen has done well down over the years at times like that,” the investment bank said. “Japan’s got the largest positive net  international asset position in the world, and that means that a combination of a cheap currency (on valuation) and increased uncertainty can cause disorderly yen appreciation.”

SocGen has tipped the dollar/yen at 102 at end-2019.

Currencies

The U.S. dollar index was at 96.27 at 7:05 A.M. SGT, off levels as high as 96.73 in Thursday’s session, according to ICE futures data.

The 10-year U.S. Treasury note yield was at 2.557 percent at 7:59 A.M. SGT, off levels as high as 2.652 percent in Thursday’s session, according to Tullett Prebon data. 

Euro to strengthen?

The euro/dollar was at 1.1394 at 8:08 A.M. SGT after trading in a 1.1308 to 1.1411 range on Thursday, according to DZHI data.

Bank of America Merrill Lynch has tipped the euro to strengthen into 2019.

“The bottom line for 2018 in our view is that the euro weakened because the U.S. economy accelerated and the Eurozone economy decelerated,” it said in a note this week. “To a large extent this has been a U.S. dollar move, as the euro has remained broadly constant with respect to non-U.S. dollar currencies.”

But it added that heading into 2019, the effects of U.S. fiscal stimulus were set to fade, with U.S. economic growth already fading.

“The fiscal stimulus pushed the U.S. economy above potential and the U.S. dollar above equilibrium,” BoFA-ML said, adding that at the same time, eurozone growth should stabilize at potential, factors which are consistent with a stronger euro/dollar.

The British pound/dollar was at 1.2626 at 8:08 A.M. SGT after trading in a 1.2467 to 1.2648 range on Thursday, according to DZHI data.

The dollar/yuan ended Thursday at 6.8707 after trading in a 6.8596 to 6.8826 range during the session, according to DZHI data.

The dollar/Singapore dollar was at 1.3642 at 8:09 A.M. SGT after trading in a 1.3628 to 1.3679 range on Thursday, according to DZHI data.

The dollar/Malaysian ringgit was at 4.1360 at 8:04 A.M. SGT after trading in a 4.1350 to 4.1470 range on Thursday, according to DZHI data.

The dollar/Indonesian rupiah was at 14,470 at 8:08 A.M. SGT after trading in a 14,405 to 14,487 range on Thursday, according to DZHI data.

 

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