FOREX-Swiss franc holds gains, yen steady as traders eye Iran

The Swiss franc held gains against the dollar on Tuesday as traders sought save-havens amid heightened anxiety about potential Iranian retaliation to a U.S. drone strike that killed its most prominent military commander.

The yen, another safe-haven currency, pulled back from a three-month high versus the dollar, but sentiment remains fragile due to the increasing worries about armed conflict between the United States and Iran. Highlighting the concerns, the U.S. currency nursed losses against sterling and the euro as the emergence of a new geopolitical flashpoint led some investors to reassess their tolerance for risk at the start of the new year.

The United States has denied Iranian Foreign Minister Mohammad Javad Zarif a visa to travel to New York for a United Nations Security Council meeting on Thursday, according to a U.S. official, raising questions about what steps Iran will take next. "Sentiment clearly favours risk-off trades, but dollar/yen is not falling much because Japanese importers are buying," said Yukio Ishizuki, foreign exchange strategist at Daiwa Securities in Tokyo.

"Excluding this real demand, the dollar is weak against other currencies. This reflects the situation in the Mid-East, but we need to see what happens next." Against the dollar, the Swiss franc was quoted at 0.9689 following a 0.5% jump on Monday toward its highest level in more than a year.

The yen was steady at 108.44 per dollar, off a three-month high of 107.77 touched on Monday. The dollar index against a basket of six major currencies stood at 96.650, following a 0.2% decline on Monday.

The United States has no plans to pull its troops out of Iraq, Defense Secretary Mark Esper said on Monday, following reports of a U.S. military letter informing Iraq officials about the repositioning of troops in preparation to leave. This came after Friday's drone strike in Baghdad ordered by U.S. President Donald Trump that killed Iranian military commander Qassem Soleimani, widely seen as Iran's second most powerful figure behind Supreme Leader Ayatollah Ali Khamenei.

The U.S. government says Soleimani was actively developing plans to attack U.S. interests in Iraq and the Middle East. Iran's leaders have promised to avenge the killing. Elsewhere in the currency market, the pound traded at $1.3174, following a 0.7% jump on Monday. The euro was quoted at $1.1193 after a 0.4% gain in the previous session.

Spot gold, another safe-haven asset, fell 0.5% to $1,558.62 per ounce, pulling back from a near seven-year high of $1,579.72 reached on Monday. Investors await data due later on Tuesday on the U.S. trade balance, factory orders, and the services sector to measure the health of the world's largest economy.

The United States and China are expected to sign a preliminary deal on Jan. 15 to de-escalate a prolonged trade war, but rising geopolitical risks threaten to overshadow the benefits of reduced trade friction. In the onshore market, the yuan edged slightly higher to 6.9664 per dollar.

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