Safe-haven yen strengthens after US charges China's Huawei with fraud
The safe-haven yen firmed on Tuesday after the U.S. Justice Department charged China's Huawei Technologies Co Ltd with fraud, ratcheting up U.S.-Sino trade tensions and prompting investors to ditch risky assets.
The United States on Monday charged China's Huawei Technologies Co Ltd, its chief financial officer and two affiliates with bank and wire fraud to violate sanctions against Iran in a case that has escalated tensions with Beijing. Investors fear the charges could complicate high-level trade talks set to begin on Wednesday where China's Vice Premier Liu He will meet with U.S. Trade Representative Robert Lighthizer and others.
"There is a much lesser chance now that we get anything positive out of these trade negotiations," said Nick Twidale, chief operating officer at Rakuten Securities. "This is likely to be bad for risky assets such as stocks and we expect the dollar/yen and Australian dollar to be under pressure," Twidale said. The yen, a currency sought out during times of market uncertainty or economic stress, advanced a little on the greenback to 109.27. Against the Aussie dollar, the yen was up 0.4 percent to 78.04. The dollar index, a gauge of its value versus six major peers, was flat at 95.72 and holding close to a two-week low.
Market participants are focusing on the Federal Open Market Committee policy meeting between Jan 29-30, where Chairman Jerome Powell is widely expected to acknowledge growing risks to the U.S. economy as global momentum weakens. Investors expect the Fed to adopt a more cautious stance on policy than they were in 2018, pressured by signs of a peak in U.S. corporate earnings and the loss of economic momentum both at home and globally.
Interest rate futures market is pricing in no Fed hikes this year. Last year, the dollar enjoyed a solid rally as the U.S. central bank's raised rates four times thanks to a robust economy. Elsewhere, the euro was a bit weaker at $1.1427, but not far off its highest level in more than a week. Traders believe recent weak economic readings on Germany and France, and the European Central Bank's dovish stance, are already priced into the euro.
Sterling was also slightly down at $1.3157, pulling back from 3-month highs. Later on Tuesday, lawmakers will debate and vote on British Prime Minister Theresa May's next steps, after the overwhelming rejection of her Brexit plan earlier this month, and have been proposing amendments seeking to shape the future direction of Brexit. Analysts expect sterling to remain volatile. Britain is set to leave the European Union on March 29, but the country's members of parliament remain far from agreeing on a divorce deal.
(With inputs from agencies.)