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FOREX-Dollar rises against yen as risk appetite returns
October 20, 2014 / 8:22 AM / 3 years ago

FOREX-Dollar rises against yen as risk appetite returns

* Return of risk appetite across markets

* Dollar up vs yen as Treasury yields pull away from lows

* News GPIF may raise foreign asset holdings also helps dollar

By Jemima Kelly

LONDON, Oct 20 (Reuters) - The dollar rose against the safe-haven yen on Monday as upbeat data and a push-back of interest rate hike expectations restored some risk appetite to financial markets after a bout of jitters over global growth.

Wall Street rallied and U.S. Treasury yields rose on Friday after deep losses after a surprisingly strong U.S. consumer sentiment reading and better-than-expected housing numbers that suggested economic growth in the United States was solid.

The greenback got an extra boost against the yen on reports that Japan’s $1.2 trillion Government Pension Investment Fund (GPIF) will significantly increase its allocation for stocks and boost its foreign asset holdings, in turn spurring demand for foreign currencies.

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.1 percent to 85.181 after dropping to a three-week trough of 84.472 last week.

“There are a number of factors providing some support for risk at the moment, but the big question is how long that lasts,” said Ian Stannard, head of European currency strategy at Morgan Stanley in London, citing comments from several policymakers that have helped push back rate hike expectations.

Boston Federal Reserve President Eric Rosengren told Reuters over the weekend that the recent volatility in financial markets reinforced the need for the Fed to be patient in raising interest rates. And on Friday a top Bank of England policymaker said the bank may keep rates lower for longer.

“We think that any rebound in the high-beta currencies is still going to provide a good selling opportunity against the dollar,” Stannard added.

High-beta currencies, such as the Australian and the New Zealand dollars, are sensitive to perceived shifts in global demand. They also fared better on Monday as pessimism over the world economy was tempered and risk sentiment improved.

The Australian dollar climbed 0.2 percent to $0.8757, while its New Zealand counterpart rose 0.3 percent to $0.7937.


The dollar rose 0.2 percent against the yen to 107.06 yen , pulling further away from a five-week low of 105.195 hit last week.

The greenback had hit a six-year high at the start of this month, poking above 110 yen - a level at which nearly half of Japanese firms think the government should start defending its currency, according to a Reuters poll - but fell back as growth worries prompted investors to put money into safe-haven assets.

“The dollar could extend its gains to the mid-107 yen level if equity market sentiment in Asia and Europe improve,” said Masafumi Yamamoto, a market strategist for Praevidentia Strategy in Tokyo.

“The GPIF news is also rare as it touches on figures related to foreign asset allocations and could be leading to further selling of the yen.”

Taking tips from Friday’s rebound on Wall Street, Tokyo’s Nikkei, which hit a five-month trough on Friday, surged 3.5 percent.

In focus was whether the equity markets can retain their semblance of calm in the face of coming data. Indicators including September industrial output, retail sales and third quarter GDP will be released in China on Tuesday.

Other data this week that could have a bearing on global risk sentiment includes U.S. inflation on Wednesday and euro zone and German PMI indexes on Thursday.

The euro was steady, despite data from the euro zone’s biggest economy, Germany, that showed producer prices declining for the 14th consecutive month, highlighting the disinflationary pressures concerning investors and policymakers alike.

The single currency was flat against the dollar at $1.2764 . (Additional reporting by Shinichi Saoshiro in Tokyo; Editing by Andrew Heavens)

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