September 11, 2013 / 8:17 AM / 4 years ago

FOREX-Yen weakens vs euro, dollar as diplomacy eases Syria tensions

* Yen near multi-year low vs euro, 7-week low vs dollar

* Obama speech reduces chances of US strike against Syria

* Next week’s Fed meeting in focus as mkts await stimulus trim

* Solid Chinese data raises hopes of recovery in China

By Anooja Debnath

LONDON, Sept 11 (Reuters) - The yen was in sight of multi-year lows versus the euro and slipped to a seven-week trough against the dollar on Wednesday as an easing in international tensions over Syria prompted investors to seek higher-yielding assets.

U.S. President Barack Obama pledged on Tuesday to explore a diplomatic plan from Russia to take away Syria’s chemical weapons, although he voiced skepticism about it and urged Americans to support his threat to use military force if needed.

With an imminent U.S. military strike on Syria now looking unlikely investors sold the yen, which is seen as a safe haven during times of crisis, pushing the dollar to a peak of 100.62 yen on Wednesday, its highest level since July 22.

The rapid rise in the euro and the dollar against the yen, then triggered some profit taking which saw both pairs come off their recent highs. However, analysts said that improving risk sentiment meant the yen would probably remain under pressure.

By 0743 GMT on Wednesday the dollar was flat at 100.33 yen.

“Due to developments in Syria and with a U.S. military strike no longer imminent, risk appetite has found some support and this has hurt the yen,” said Niels Christensen, FX strategist at Nordea.

The euro was down 0.1 percent at 133.07 yen, but was still close to the intra-day high of 133.375 yen and within sight of 133.82 yen hit in May, which would be its highest since January 2010. Against sterling the Japanese currency hit a four-year low of 158.17 yen.

Also helping risk currencies against the yen, was a string of solid data out of China this week that reinforced signs that the world’s No. 2 economy is stabilizing after slowing for more than two years.

Traders said the Syria situation would probably now be less of a focus for the market and next week’s U.S. Federal Reserve meeting would be the main driver of currencies.

“Possible easing in tensions over Syria could even strengthen conviction in markets that the Federal Reserve will taper its stimulus. I expect the dollar to stay above 100 yen as the market prices in the Fed’s tapering,” said a trader at a Japanese bank.

Although the U.S. jobs report last Friday fell short of market expectations, many investors still expect the Fed to start reducing its bond-buying programme at next week’s policy meeting, underpinning the dollar.

The euro held firm near a two-week high against the dollar, fetching $1.3260 following a rebound since hitting a seven-week low of $1.31045 late Friday.

Better-than-expected economic data and improving market sentiment has helped the single currency.

But analysts at Morgan Stanley warned that the strength in the euro could be short-lived, citing political uncertainty in Italy and a likely increase in volatility in the run-up to the German elections on Sept. 22.

“The euro could see some near-term support from the improvement in risk appetite, but we stick to our strategy of selling rallies,” they said in a note. “A break above the August high of (around) $1.3450 is unlikely, and we would look to sell around the $1.3320 level.”

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