(adds fresh quotes, details on euro)
* Yen hits five-month high versus euro
* European stocks in the red, German bund yields fall
* One-year euro/dollar implied vols rise
By Anirban Nag
LONDON, July 17 The yen hit a five-month high
against the euro on Thursday on renewed safe-haven inflows as
the West imposed more sanctions on Russia, which weighed on
global risk sentiment.
European stocks were in the red while German bunds,
another safe haven in times of turmoil, were in demand as the
United States slapped sanctions on some major Russia companies
including its biggest oil group and largest independent natural
The sanctions brought the Russia-Ukraine back into focus,
unnerving investors as it could have the potential to disrupt
global markets and an economic recovery.
The dollar fell 0.25 percent against the yen to 101.41 yen
while the euro weakened to 137.185 yen, its
lowest since early February. The Swiss franc was also firmer,
with the dollar down 0.1 percent against the franc at 0.8976
"There is a worsening of risk sentiment linked to the events
in Russia that is driving up the yen," said Yujiro Goto,
currency analyst at Nomura.
"Also dollar/yen has been rising in the past few days, so we
are seeing some unwinding of those positions. There should be
good support at 101.20 for dollar/yen."
The yen and Swiss franc are often bought up in times of
economic uncertainty and financial market stress.
The dollar index, which measures its performance
against a basket of currencies, was slightly lower at 80.527,
having hit a one-month high on Wednesday. It had risen on market
speculation that Federal Reserve chair Janet Yellen is leaning
towards tightening monetary policy.
But U.S. yields fell on Thursday, with the
10-year dropping to 2.51 percent, and dragging the dollar down.
"It is somewhat disappointing for dollar bulls that Yellen's
testimony over the last couple of days failed to trigger a
larger reaction in the forward anticipation of Fed moves," said
John Hardy, head of currency strategy at Saxo Bank.
"So the dollar may continue to trade passively in the middle
of the pack as the focus is on the euro and yen."
The euro was steady against the dollar at $1.3530,
recovering from a one-month low of $1.35205 hit earlier
in the session. Traders said a break of support at $1.35 could
cause a wave of selling.
Eurostat confirmed June's consumer inflation was subdued at
an annual 0.5 percent, well below the European Central Bank's
inflation target of close to 2 percent. It has little policy
implications for now, given the ECB wants to wait to see how its
latest measures, including negative deposit rates, work.
But a number of investors are putting bearish euro bets in
place, suggesting the currency was likely to grind lower in
coming months amid diverging monetary policy outlooks between
the Fed and the ECB.
In the options market, the one-year implied volatility
has moved higher to over 6 percent in the past two
days and the risk reversal skew - the gauge of demand for
options betting on a currency rising or falling - was
shifting substantially to euro puts, suggesting losses.
The New Zealand dollar continued to struggle after benign
local inflation data on Wednesday raised questions about whether
the Reserve Bank of New Zealand will continue to tighten much
more this year. The kiwi fell to a three-week low of $0.8683
, down 0.4 percent on the day.
(Additional reporting by Hideyuki Sano in TOKYO; Editing by
Janet Lawrence and Hugh Lawson)