Yen exerts safe-haven pulling power amid Brexit, Italian budget worries

Big 5

The Japanese yen, a safe haven in uncertain times, firmed against the dollar on Tuesday, as the euro and sterling suffered due to doubts over Italy’s budget spending and over British Prime Minister Theresa May’s future with Brexit talks stalled.

The dollar weakened 0.21 in Asian trade to trade at 112.55 yen, gaining as risk-shy investors retreated from Asia’s main share markets.

The sterling traded flat at $1.2960 on Tuesday, having lost 0.83 percent on Monday, its steepest fall in percentage terms since September 21. The pound has lost 2.2 percent versus the greenback in the last seven trading sessions.

With just over five months until Britain is scheduled to exit the EU, Brexit talks have hit an impasse, sparking speculation that May could be toppled by rebels in her Conservative Party.

The euro eased marginally to $1.1453 on Tuesday, as concern over Italy’s free spending budget drove sentiment. The single currency failed to draw relief from a fall in Italian 10-year bond yields on Monday. The benchmark Italian 1-year yield declined by 3 percent on Monday, its steepest fall in percentage terms since October 3.

Moody’s downgraded the Italian credit rating because of the government’s spending plans on Friday but surprisingly kept the outlook stable.

“Tensions are likely to heighten between Rome and Brussels, especially if the European Council launch an ‘Excessive Deficit Procedure’ against Italy,” said Philip Wee, currency strategist at DBS in a note.

“This would require Italy to provide a plan of corrective action to rein in its large public debt, currently at 130 percent of GDP vs the 60 percent Maastricht rule,” added Wee.

The dollar index, a gauge of its value versus six major peers, traded flat at 96.02 on Tuesday.

“The dollar is still expected to retain the upper hand given that potential negatives across the other majors remain readily available. The dollar index may therefore continue to test 96.00 for a sustained breach to detach above its 200-week moving average of 95.792 on a multi-session basis,” said OCBC analysts in a note.

The Australian dollar lost 0.16 percent versus the greenback on Tuesday, changing hands at 0.7069. It lost 0.57 percent on Monday.

Source: Reuters