© Reuters. Illustration photo of a Japan Yen note
By Vatsal Srivastava
SINGAPORE (Reuters) – The dollar eased against the yen on Wednesday as caution prevailed on the first trading day of the new year on wider concerns about global economic growth, the U.S. government shutdown and a slower pace of Federal Reserve rate hikes.
The safe-haven yen
The yen has gained for three straight weeks as risk-off sentiment rattled financial markets.
However, while market participants remain concerned about the broader investment outlook, renewed hopes for a resolution to the U.S.-Sino trade dispute have provided some cause for optimism. On Sunday, U.S. President Donald Trump indicated that progress had been made toward a potential settlement of trade tensions which had plagued stock markets for much of 2018.
“It’s still difficult to be strongly positive given all the uncertainties. Hopefully, there will be progress on trade talks but the market is cautious and that’s benefiting the safe-havens such as the yen,” said Sim Moh Siong, currency strategist at Bank of Singapore.
“The yen’s main driver over the last few sessions has also been the fall in U.S. yields…market thinks the tightening of financial conditions will make the Fed pause in 2019,” added Sim.
In December, the greenback weakened by around 3.8 percent versus the yen.
On Wednesday, the () was marginally lower from Monday’s close, fetching 96.08.
Rising interest rates drove the dollar’s outperformance in 2018 with the Fed raising rates four times over the year, as unemployment remained at historically low levels and wage pressures rose.
However, the dollar has been under pressure in recent weeks as investors grow increasingly nervous about a slowdown in the U.S. economy and peak corporate earnings growth.
The U.S. 10-year treasury yield () fell by around 35 basis points over December to 2.69 percent as bond traders bet that the Fed would not be able to raise rates in 2019 due to slowing economic momentum.
The euro () was flat at $1.1464. Traders expect the single currency to remain under pressure as both growth and inflation in the eurozone remain below the European Central Bank’s expectations. The euro lost 4.4 percent of its value versus the dollar in 2018.
With three months until the United Kingdom is due to leave the European Union, British Prime Minister Theresa May’s Brexit deal is floundering and traders expect sterling to remain under pressure.
The Australian dollar
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