US Markets

Yen stands tall as U.S. yield curve inversion stokes economic worries

Credit: REUTERS/YURIKO K NAKAO

The yen stood tall against its peers on Wednesday, with an inversion of the U.S. yield curve stoking recession worries and keeping the safe-haven Japanese currency in demand.

By Shinichi Saoshiro

TOKYO, Aug 28 (Reuters) - The yen stood tall against its peers on Wednesday, with an inversion of the U.S. yield curve stoking recession worries and keeping the safe-haven Japanese currency in demand.

"It remains to be seen how accurately the U.S. yield curve inversion reflects economic conditions. But it does prompt speculators to reduce dollar positions and increase their bets on the yen," said Mitsuo Imaizumi, chief forex strategist at Daiwa Securities.

The yen traded at 105.820 per dollar JPY=, holding its gains from the previous day, when it advanced 0.35%.

The 10-year U.S. Treasury yield US10YT=RR stood at 1.484%, staying in proximity of 1.443%, its lowest since July 2016 brushed on Monday. The 10-year Treasury yield was about 4 basis points below the two-year yield US2YT=RR, and the gap between the two maturities was the widest since 2007.

Takuya Kanda, general manager at Gaitame.Com Research Institute, said markets had weathered the worst of the storm after Washington and Beijing last week announced fresh tit-for-tat tariffs in their trade war.

But some of the optimism generated by U.S. President Donald Trump's comments on Monday that raised hopes that the two sides could begin to de-escalate their tariff war has begun to fade after China's foreign ministry dismissed U.S. suggestions that there had been contact between the two sides.

The euro was nearly flat at $1.1085 EUR= after inching down 0.1% on Tuesday when it had managed to recoup some of the intraday losses on hopes that a snap election in Italy could be avoided.

The pound traded near a one-month high of $1.2310 GBP=D4 scaled overnight.

Sterling rallied on Tuesday after Britain's opposition Labour Party leader Jeremy Corbyn said he would do everything necessary to prevent Britain leaving the European Union without a divorce deal.

The Australian dollar AUD=D4 added to overnight losses and slipped 0.15% to $0.6739.

The Japanese currency also extended an overnight surge against the Australian and New Zealand dollars and held near a 28-month peak versus the euro.

The Aussie has been on the back foot since Reserve Bank of Australia (RBA) Deputy Governor Guy Debelle said on Tuesday that a weakening the currency was supporting the economy and that further falls would be beneficial.

The Aussie had fallen to a decade-low of $0.6677 early in August, weighed by factors including RBA's monetary easing bias and a bleaker economic outlook in China, Australia's largest trading partner.

Dollar/yen, US yield curvehttps://tmsnrt.rs/2PemUqj

(Reporting by Shinichi Saoshiro Editing by Simon Cameron-Moore)

((shinichi.saoshiro@thomsonreuters.com;))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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