* Recent selloff in EM FX supports demand for safe havens
* Dollar/yen hits lowest level since early December
* Euro pops up after German IFO, then slips
By Anirban Nag
LONDON, Jan 27 Safe-haven currencies such as the
yen and the Swiss franc took a breather on Monday, with both
falling against the dollar which benefited from expectations the
Federal Reserve may reduce monetary stimulus this week.
A rebound in two-year Treasury yields helped the
dollar to 102.55 yen, up 0.2 percent on the day. It had
fallen to 101.77 yen, its lowest since early December, in early
Asian trade when liquidity was thin.
Despite the recovery, the dollar has shed nearly 2 percent
in the past three sessions as investors saw currencies like the
yen and the Swiss franc as relatively safe while a sell off in
emerging markets assets picked up pace late last week.
The dollar rose against the Swiss franc, bouncing
from a one-month low struck on Friday. The euro also rose 0.2
percent to 1.2265 francs having fallen to a one-month
low of 1.2227 francs on Friday when demand for the yen and Swiss
"Emerging market currencies remain vulnerable to a sell off
if the Fed continues to taper and that should keep the dollar
supported," said Jane Foley, senior currency strategist at
"Against the yen, there is a great deal of short yen bets,
so we may see a move lower before the dollar can rise again."
Data from the U.S. Commodity Futures Trading Commission
showed speculators' net yen short positions stood at 114,961
contracts, near a 6-1/2-year high of 143,822 contracts set late
Some of the nervousness was reflected in the options market
where one-month implied volatility - a measure of how sharp
swings are likely to be - in dollar/yen rose to its
highest in five weeks. The one-month dollar/yen implied vol rose
to 9.7 percent, having traded at 7.95 percent on Thursday.
"The yen is now the only G10 currency that consistently
trades as a safe haven and as such, should be the natural
beneficiary of ongoing pressure on EM currencies," said Adam
Cole, head of G10 FX strategy at RBC Capital.
Emerging market (EM) currencies from Turkey to Argentina
remained under pressure, making investors nervous that the
shakeout in markets could lead to a full-blown crisis.
Some of the selling had its roots in domestic factors. In
Turkey, a graft investigation is posing one of the biggest
threats to Prime Minister Tayyip Erdogan's 11-year rule, while
Argentina abandoned support of its peso on the open market last
week, sending the currency skidding to its biggest drop since
the 2002 financial crisis.
An underlying concern is less accommodative U.S. monetary
policy which is encouraging a shift of funds back to the United
States from emerging markets. These markets had enjoyed a flood
of cheap money from the Federal Reserve's money printing
programme, known as quantitative easing.
The Fed meets this week and is expected to reduce its bond
buying programme by $10 billion.
In addition, tightening credit conditions in China as the
government seeks to curb growth in high-risk lending heightened
fears about a possible slowdown in Asia's economic powerhouse.
The euro slipped against the dollar to $1.3670,
having risen to a session of $1.3716 after German IFO numbers.
German business morale climbed in January to its highest level
since July 2011, suggesting Europe's largest economy is on track
for a strong start to 2014..
Emerging market currencies performance - 2014 YTD (trade