With fall in treasury yields, dollar slips to 2-week low vs. Yen

by Jonathan Adams

The dollar slipped to a two-week low against the yen on Thursday, reflecting a fall in U.S. bond yields as weaker-than-expected economic data weighed on the greenback and waning risk appetite boosted Japan’s safe-haven currency.

Japan’s Nikkei stock index – which tends to move in the opposite direction to the yen – shed 1.3 per cent as Toshiba Corp dived 16 per cent after news of potential massive writedowns led to a downgrade of its credit ratings. The dollar dipped 0.8 per cent to 116.30 yen.

Against a basket of major currencies, the greenback fell 0.6 per cent to a one-week low, extending falls late on Wednesday after data showed contracts to buy previously owned U.S. homes falling to their lowest level in nearly a year.

Yields on 10-year U.S. Treasury yields – which have in recent months been closely correlated with the dollar/yen exchange rate – also fell to their lowest in two weeks, having soared to a more-than-two-year high above 2.6 per cent earlier in the month.

“We had a huge sell-off in the U.S. bond market since the U.S. election…so perhaps we’ve seen the crescendo of selling, at least initially,” said MUFG currency economist Lee Hardman, in London.

“If that’s the case and U.S. yields stabilize or come back lower in the near term, there’s some scope there for dollar/yen to drift lower in the near term as well.

Hardman added that the break below 117 yen, which had provided a floor during the Christmas period in which volumes have been thin, had accelerated the move lower.

Sterling climbed back up from two-month lows to $1.2270 (£1.00), but was on track for a more than 16 per cent fall against the greenback in 2016 – its worst showing since 2008.

The euro was also given breathing space as the dollar weakened across the board. The common currency climbed half a per cent to $1.0450 (£0.85) after falling to as low as $1.0372 (£0.85) the previous day.

“The dollar looks like it has run its course against the yen for now. But against the euro, the dollar still has room to gain as the pair is now trying to catch up to the widening between U.S. and German yields,” said Masafumi Yamamoto, chief forex strategist at Mizuho Securities in Tokyo.

The spread between the 10-year U.S. Treasury and German bund yields is the widest on record stretching back to 1990.

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