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FOREX-Yen's recovery stalls, but sentiment shaky after gold rout
April 16, 2013 / 8:31 AM / in 5 years

FOREX-Yen's recovery stalls, but sentiment shaky after gold rout

* Dollar/yen rises 1 percent, euro/yen up 1.5 percent

* Sentiment shaky after China data, Boston explosions

* Aussie recovers after sharp fall, gold still in focus

By Anirban Nag

LONDON, April 16 (Reuters) - The yen’s recent bounce ran out of steam on Tuesday as stocks and commodities stabilised, but investors remained wary that another rout in gold prices could spur demand for the safe haven Japanese currency.

The yen, which is very liquid and tends to benefit in times of stress in the global economy or financial markets, has been a big beneficiary in the past few days after poor Chinese data, a dramatic drop in gold prices and explosions in Boston combined to drive investors to seek safe havens for their money.

But its recovery stalled on Tuesday with analysts saying its medium-term trend toward more weakness remained in place after the Bank of Japan earlier this month unveiled an aggressive plan of monetary easing aimed at beating deflation.

The U.S. dollar rose 1 percent to 97.90 yen, though it was still down about 2 percent from a four-year high of 99.95 yen hit last week following the Bank of Japan’s $1.4 trillion stimulus launch announced on April 4.

The euro also jumped 1.5 percent to 128.03 yen.

“We had a clear rout of positions in the past few days,” said Paul Robson, senior currency strategist at RBS. “But any pullback in dollar/yen is temporary and we are fairly confident that dollar will rise against the yen in the medium term given capital outflows from domestic Japanese investors.”

Earlier on Tuesday, the U.S. currency had fallen to 95.67 yen, its lowest since April 4.

News of explosions in Boston, which a White House official said are being treated as an “act of terror”, prompted speculators to sell the euro, the dollar and growth-linked currencies.

Traders said investors would need to see a clearer sign that commodity prices are stabilising before their appetite for riskier assets returns. Gold fell 9 percent on Monday, its biggest percentage loss since 1983, spooking many traders.

Robert Rennie, head of currency strategy at Westpac said in a note Japanese investors of gold may have been big sellers after the precious metal hit a record high in yen-denominated terms last week.

He added that until Japanese domestic investors, like banks, insurance companies and pension funds step up purchases of foreign assets, they are likely to trim their gold holdings.

The latest drop in gold came after disappointing Chinese data, talk of large-scale selling by a big fund, and news that the Central bank of Cyprus might sell gold reserves, though traders are unsure exactly what has caused such a big slide.

Spot gold last stood at $1,375.10 per ounce, up more than 1 percent on the day.

G20 NERVES

Selling in the yen has also lost momentum after a United States currency report late last week said it would watch Japan’s policies to ensure Tokyo was not devaluing the yen to gain competitive advantage for exports.

“Many players had positioned themselves for the dollar’s rise above 100 yen and now they were forced to dump the dollar. But looking at the U.S. currency report, you get the impression while the U.S. and other countries may accept the 90-95 yen range, they don’t welcome 95-100 range,” said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

The Treasury said it would press Japan to keep its promise to allow the market to set its exchange rate and there may be more rhetoric on the issue at a Group of 20 meeting in Washington from Thursday.

The euro was up 0.1 percent at $1.3055, though it could give up some of those gains if a German ZEW survey fells short of expectations. The economic sentiment index, due at 0900 GMT, is forecast to drop to 42 in April from 48.5, while current conditions are also likely to take a knock.

“The data could feed into expectations that the European Central Bank will have to do something, given weak economic performance and low inflation,” said RBS’s Robson.

The Australian dollar traded up 0.6 percent at $1.0370 , after Monday’s 1.8 percent fall, which took the Aussie unit to a one-month low of $1.0291.

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