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FOREX-Yen, dollar in demand as echoes of March trade ring through markets

Mon, 21st Sep 2020 12:20

* Yen hits 6-month high vs. dollar

* Fed speakers in focus this week

* Taiwan dollar hits 7-year high

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E

By Ritvik Carvalho

LONDON, Sept 21 (Reuters) - The yen hit a six-month high
against the dollar on Monday, gaining for a sixth consecutive
session against the greenback as stock markets tumbled and
pushed investors to the perceived safety of the Japanese
currency.

Wall Street closed lower on Friday, and both Asian and
European stock markets fell on Monday as the threat of new
lockdowns amid rising cases of the COVID-19 disease made
investors anxious about the global recovery.

U.S. stock futures indicated further losses on Wall Street
on Monday.

The selloff had a tone similar to a drawdown in March, with
stock markets led lower by banks and travel shares, the euro
falling, the dollar gaining broadly, and government bond yields
falling.

In early deals in London, the yen hit 104.065 against the
dollar, gaining as much as half a percent. That was its highest
level since March 12.

"An unrelenting rise in coronavirus cases globally is
weighing on sentiment at the start of the trading week as
investors increasingly question their rosy predictions about the
recovery," said Raffi Boyadjian, senior investment analyst at
online broker XM.

The dollar - subdued during Asian hours - perked up in
London trade as European stocks sank to two-week lows and U.S.
stock futures fell.

The index that measures the greenback against a basket of
peer currencies was up 0.3% at 93.267 by midday in London.

RISK SENTIMENT

Marshall Gittler, head of research at BDSwiss, said the
yen's rise was part of a typical "risk-off" move in FX markets
with the exception of the Swiss franc, which turned weaker.

"With the pickup in foreign bond yields for Japanese
investors getting less and less, capital flows out of Japan may
fall even further," he said.

"Meanwhile, with Warren Buffet buying Japanese stocks and a
new administration coming in with a focus on economic and
regulatory reform, foreign purchases of Japanese stocks may pick
up."

The result could be a stronger yen regardless of risk
sentiment, Gittler said.

In its past six sessions, the yen has gained 2% against the
dollar.

Key for the U.S. currency's direction this week will be a
slew of Federal Reserve speakers, who may shed light on the U.S.
central bank's new approach to inflation.

Fed Chairman Jerome Powell is due to appear before
Congressional committees, while Fed committee members Lael
Brainard, Charles Evans, Raphael Bostic, James Bullard, Mary
Daly and John Williams are also making public speeches.

The euro traded 0.5% lower to the dollar, falling as low as
$1.1776 at one point. Sterling also fell 0.5% to trade
at $1.2849 as the dollar caught a bid.

"To see euro/dollar break to the upside, FOMC (Federal Open
Markets Committee) members would need to flip communication in a
dovish direction and signal more support while PMIs should
surprise on the upside," said Christin Tuxen, Head of FX
Research at Danske Bank.

Tuxen said the bank's main scenario was a broadly unchanged
spot rate in the euro/dollar pair by week end.

In Asia, the Chinese yuan hovered just below a 16-month
high.

Foreigners' Chinese bond buying has helped put the yuan on a
tear, lifting it nearly 6.5% in four months.

Investors are expecting FTSE Russell will include China in
its World Government Bond Index on Thursday, likely
triggering even more inflows and supporting the currency.

The Taiwan dollar jumped 0.7% to a seven-year high
of 28.935 per dollar, a move analysts said might be due to a
combination of equity inflows and authorities seeking to project
calm amid heightened cross-straits tensions.
(Reporting by Ritvik Carvalho; additional reporting by Tom
Westbrook in Singapore; Editing by Angus MacSwan and Alison
Williams)

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