Safe-haven currencies rally as US-North Korea tensions escalate

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10 August 2017

Matthew Ryan

Senior Market Analyst at Ebury. Providing expert currency analysis so small and mid-sized businesses can effectively navigate international markets.

The safe-haven Japanese Yen and Swiss Franc ended London trading as two of the best performing currencies in the world yesterday as investors fled from riskier assets amid concern over increased tensions between the US and North Korea.

T
he Yen shot below the 110 mark against the US Dollar to a near two month high, while the Franc rallied by almost one percent for the day following Donald Trump’s extraordinary ultimatum to North Korea on Tuesday. Trump warned additional threats against the US from Pyongyang would be met with “fire and fury like the world has never seen”. North Korea itself followed up by claiming it was “carefully examining” plans for a missile strike on the US territory of Guam.

While the conflict between the two countries remains a war of words markets are wary that the threat could escalate, in no small part to the unpredictability of the respective leaders, Trump and Kim Jong Un. The US Dollar has already been firmly on the back foot in the past few months and the possibility of confrontation with North Korea provides further reason to be bearish on the US currency, particularly against low risk currencies. Yesterday’s rally in the Swiss Franc was in fact one of the currency’s largest one-day gains in the past two-and-a-half years.

Sterling and Euro range bound during quiet August trading

Sterling edged back above the 1.30 mark against the Dollar on Wednesday, having slid by around half a percent a day previous on expectations for a delay in the Bank of England’s interest rate hike timetable. Wednesday was void of any news whatsoever, whether that be political or economic. Investors instead had one eye on this morning’s industrial and manufacturing production numbers, which could present another stumbling block to Sterling strength if they surprise to the downside.

With trading equally as quiet in the Eurozone, the Euro ended the London session unchanged, despite earlier falling below the 1.17 mark against the Dollar for the first time in almost two weeks. With no major announcements or data releases again in the Euro-area today, traders will look to Friday’s German inflation numbers as the next event risk for the common currency.

Rand hits one month low after Zuma survives no confidence vote

In an unusually quiet day of currency trading, it was the smaller emerging market currencies that stole many of the headlines. The South African Rand slipped to its weakest position against the US Dollar in a month on Wednesday, a day after widely unpopular President Jacob Zuma survived a vote of no confidence in Parliament. Zuma, who has been plagued with allegations of corruption ever since he took office in 2009, won 198 votes to the oppositions 177.

Mexico’s Peso depreciated to its weakest position since 9 July ahead of today’s central bank meeting, in which policymakers are expected to keep rates unchanged. Meanwhile, the recently de-pegged Czech Koruna dipped to end of June levels versus the Euro.