U.S. Markets

Dollar falls against yen, Swiss franc on new trade concerns

NEW YORK (Reuters) - The U.S. dollar fell against the Japanese yen and the Swiss franc, traditional safe-haven investments, after media reports that trade talks between the U.S. and China had “hit a snag” over farm purchases.

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The negotiations stalled as China expressed it did not want a deal that looked one-sided in the favor of the United States, the Wall Street Journal reported on Wednesday, citing people familiar with the matter.

Investors pulled out of riskier assets, sending the three major U.S. stock indexes lower, and pushing up safe-haven assets like the Japanese yen JPY= and Swiss franc CHF=. Both currencies were at their highest in about a week against the dollar, with the yen up 0.21% at 108.76 and the franc up 0.38% to 0.989.

“The main thing we seem to be doing in FX today is following a bit of a risk-off tendency,” said Daniel Katzive, head of foreign exchange strategy for North America at BNP Paribas. “The thinking there is that the market had gotten priced for a pretty constructive outlook of reduced recession risk, reduced trade risk and (is) now paring back some of that optimism.”

Against the euro, the franc rallied to a one-month high EURCHF= as risk appetite decreased and as hedge funds unwound some of their bets against the currency.

The report Wednesday comes after a speech from U.S. President Donald Trump on Tuesday in which he threatened to raise tariffs on China and criticized European Union trade policies before a Nov. 14 deadline to decide whether to raise tariffs on European and Japanese carmakers.

Hedge funds had ramped up short bets against the franc in the last two weeks on expectations a trade pact between Washington and Beijing would fuel demand for risky assets and boost carry-trades where investors borrow in cheap currencies and invest in riskier ones.

The fall in the dollar against safe-haven assets came after the U.S. currency had held steady against the euro EUR= and a basket of six rival currencies .DXY earlier in the day on stronger-than-expected consumer prices in October and an optimistic outlook for the economy from Federal Reserve Chair Jerome Powell.

Both the inflation data and Powell’s remarks solidified the case for the central bank to pause its monetary easing cycle.

Expectations for an interest rate cut do not rise above 30% before July 2020, according to CME Group’s FedWatch tool. And the slim chances of a cut in the months prior became slimmer on Wednesday.

Reporting by Kate Duguid and Saikat Chatterjee; Editing by Chris Reese and Alistair Bell