September 26, 2017 / 12:44 AM / a year ago

FOREX-North Korea risks lift yen, euro struggles near 4-week lows vs dollar

* Yen holds big gains against dollar, euro

* Latest verbal jab by North Korea spoils risk sentiment

* Fed Yellen’s speech awaited for immediate cues

* Kiwi extends losses after Monday’s big slide

By Shinichi Saoshiro

TOKYO, Sept 26 (Reuters) - The yen stood tall on Tuesday as tensions on the Korean peninsula flared-up anew amid an escalating war of words between North Korea and the United States, while the euro struggled near a four-week low versus the dollar.

The dollar was steady at 111.760 yen after coming off a high of 112.530 the previous day.

The euro was also little changed, at 132.460 yen after dropping more than 1 percent overnight.

The Japanese currency made sharp gains after North Korea’s foreign minister Ri Yong Ho said on Monday that President Donald Trump had declared war on the country and that Pyongyang reserved the right to take countermeasures, including shooting down U.S. bombers even if they are not in its air space.

Japan is the world’s largest creditor nation and traders tend to assume Japanese investors would repatriate funds at times of crisis, thus pushing up the yen. Many wonder, however, if Japanese assets would really remain in favour if an actual war broke out in Asia.

The Swiss franc, also sought in times of geopolitical tensions, stood at 0.9663 franc per dollar after gaining about 0.3 percent overnight.

“The dollar tends to fall on flare ups in North Korean-related matters, but whether the Federal Reserve can hike interest rates in December as they projected still remains the ultimate decider,” said Shin Kadota, senior strategist at Barclays in Tokyo.

Immediate focus was on what views could be expressed by Fed Chair Janet Yellen, who is due to speak in Cleveland at 1645 GMT on “inflation, uncertainty, and monetary policy.”

The euro was 0.1 percent higher at $1.1856 but in close reach of $1.1832, its lowest level since Aug. 31 plumbed the previous day when it sank nearly 1 percent.

The common currency took a knock after German Chancellor Angela Merkel won her country’s elections over the weekend but saw a chunk of support shift to the far right.

The euro faced additional pressure after European Central Bank President Mario Draghi singled out currency volatility as a source of uncertainty that required monitoring and argued that “ample” ECB accommodation was still needed, because a premature and hasty move could unravel its work.

“The euro had risen at a fast pace and the ECB is now sending cautious signals, weighing on the euro,” Kadota at Barclays said.

The euro had risen to a 2-1/2-year high of $1.2092 on Sept. 8 on hopes that the ECB would begin dismantling its large monetary easing scheme sooner rather than later.

The New Zealand dollar extended the previous day’s slide and was last down 0.15 percent at $0.7256.

The kiwi sank 1 percent overnight after New Zealand Prime Minister Bill English’s National Party won the largest number of votes in Saturday’s election but not enough seats to rule outright, leaving investors likely facing weeks of political horse-trading before a government is formed.

The dollar index against a basket of six major currencies was a shade lower at 92.610 after rising 0.5 percent the previous day to a three-week high of 92.724. (Editing by Shri Navaratnam)

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