Yen, Swiss franc firm as Wall Street slide weighs on US dollar

Yen, Swiss franc firm as Wall Street slide weighs on US dollar

SINGAPORE,. The safe-haven Japanese yen and the Swiss franc held firm against the US dollar today as risk-averse investors trimmed their exposure to the greenback in the face of a weak performance on Wall Street.

Worries about US corporate earnings knocked the Dow Jones Industrial Average and the S&P 500 yesterday, though they had pared losses by the closing bell.

While the US dollar is also considered a safe haven currency, weakness in US equities has tended to undercut its appeal especially as talk of a peak in US corporate earnings has raised concerns about the outlook for economic growth.

Any signs of strain in US growth has implications for Federal Reserve policy, with a steady pace of US rate increases providing a boost to the US dollar this year.

“We have maintained that when sentiment really turns nasty that the yen will remain the market’s safe haven of choice,” said Rabobank analysts in a research note.

The Japanese yen was steady at 112.43 in early Asian trade, having gained 0.32 per cent yesterday and was the best performing currency in the G-10 space in that session.

The US dollar index, a gauge of its value against six major peers, was wobbly in early Asia trade. It was last slightly lower at 95.94.

The Swiss franc, considered another safe haven, traded flat at 0.9952 on the US dollar, after advancing over the last two sessions.

The euro was also steady at US$1.1472, although bearish sentiment against the common currency amid Italy’s budget woes has limited any chance of a rally.

Yesterday, the European Commission rejected Italy’s draft 2019 budget, saying it brazenly broke EU rules on public spending, and asked Rome to submit a new one within three weeks or face disciplinary action.

The uncertainty around Italy’s free spending budget has also bred some doubt on whether the European Central Bank (ECB) would be able to raise interest rates next summer.

“Euro will move cautiously for the next three weeks as it looks like Italy doesn’t want to give ground,” said Rodrigo Catril, senior currency strategist at NAB.

“However, in the near term we don’t think Italy’s woes will affect ECB’s policy…ECB will try to paint a picture of confidence in the short term,” Catril said.

The British pound is likely to remain in focus as British Prime Minister Theresa May prepares to address her Conservative Party lawmakers at a private meeting in parliament later today, as she seeks to calm growing tensions over her Brexit strategy.

The sterling was fetching US$1.2983, down 0.05 per cent. It has lost 2 per cent versus the US dollar in over a week amid concerns about Brexit and May’s survival. — Reuters