(New throughout, updates prices, updates dateline)
* Norwegian inflation surprises, pushing crown almost 1 pct
* Yen off highs as investors become less cautious
* Investors watching geopolitical developments for cues
By Jemima Kelly
LONDON, Aug 11 The Norwegian crown hit a
seven-week high against the euro after Norway reported consumer
inflation unexpectedly jumped in July, making it less likely the
central bank will cut interest rates.
That took the focus away from a risk-on move in the European
session which saw the yen backing off from the highs against the
dollar it reached last week, when tensions in Ukraine and Gaza
fuelled demand for the safe-haven Japanese currency.
The dollar was half a percent above a two-week trough of
101.51 yen that it had hit on Friday. It rebounded late
last week on news that Russia was ending military drills near
the Ukrainian border, helping U.S. stocks post their best
one-day gain since March.
European shares also rose in early trade on Monday, bouncing
back from a sharp two-week slide and tracking Wall Street's
The euro was flat at 136.73 yen, around 0.8
percent above an 8 1/2-month low of 135.73 set on Friday.
"It's essentially a risk-on move that we've hit last night,
which is a legacy of last Friday," said Daragh Maher, a currency
strategist at HSBC. "It's playing in reasonably traditional
fashion in currencies, with the likes of the Aussie higher and
the yen weaker."
The Australian dollar was flat against its U.S. counterpart
at $0.9274, above a two-month low of $0.9239 hit on
The euro fell by 0.9 percent against the Norwegian crown to
8.2855 crown per euro after data showed core
inflation jumping to 2.6 percent, ahead of the central bank's
2.5 percent long-term target and a forecast of 2 percent in a
"We would expect the Norwegian crown to bounce quite firmly
from here, with markets likely to price out more of the some
10-13 basis points (of interest rate cuts being priced in)" said
Josh O'Byrne, a currency strategist at Citi.
In June, the Norges Bank suggested the possibility of a rate
cut this year should the economic outlook weaken.
HSBC's Maher warned that investors could quickly turn
risk-averse again, given the volatility in Gaza and Ukraine.
"All these situations can turn around, so there'll be
reasonably low conviction in terms of these risk-on FX trades."
In an overview of the years since the financial crisis on
Monday, U.S. Federal Reserve Vice Chair Stanley Fischer said the
U.S. and global recoveries have been "disappointing" so far and
may point to a permanent downshift in economic potential.
Some thought Fischer would adopt a more hawkish tone after a
run of more robust U.S. data. But despite a strong rebound in
the second quarter, the U.S. growth for July-September remains
The outlook for the global economy does not look bright
enough to encourage strong risk-taking at this juncture, said
Masashi Murata, currency strategist for Brown Brothers Harriman
Japan's economy might also struggle to bounce back in the
third quarter after taking a hit in April-June from a
consumption tax increase enacted in April, Murata said.
"The current situation isn't as good as people had expected,
and I think it's difficult to expect risk appetite to
"We think the dollar will continue to find it difficult to
push higher versus the yen," Murata said, adding that it was
also notable that the U.S. 10-year Treasury yield
was still hovering at levels roughly around 2.4 percent.
While the U.S. 10-year yield has pulled up from Friday's
14-month low of 2.349 percent, it remains well below a recent
peak near 2.69 percent touched in early July.
(Additional reporting by Ian Chua and Masayuki Kitano; Editing
by Larry King)