On Friday, the dollar rallied against the yen during European trade as traders quickly wiped off the latest missile fired over Japan by N. Korea, following an initial decline in risk appetite widely across currency markets. North Korea fired a missile on Friday that flew over Japan’s northern island of Hokkaido far out into the Pacific Ocean, South Korean and Japanese officials have reported, further heightening up tensions after Pyongyang’s recent test of a powerful nuclear bomb.
Japan is the world’s largest net creditor nation, and in uncertain times traders assume Japanese repatriation of overseas funds will conceal foreign investors’ selling of Japanese assets. The yen has continued to operate as a “safe-haven” notwithstanding Japan’s geographical proximity to North Korea.
The dollar dropped as low as 109.55 yen in Asian trading, but by 0800 GMT increased than 1 percent above that at 110.68 yen. It was on pace for its best week against the Japanese currency since November.
The missile launch came just days following the 15-member United Nations Security Council unanimously firmed sanctions against North Korea over its Sept. 3 nuclear test, impressive a ban on textile exports and capping imports of crude oil.
“The markets were – or should have been – expecting some kind of response from North Korea after the tightening of sanctions, so to that extent it was a question of when North Korea responded rather than whether they responded,” stated RBC Capital Markets currency strategist Adam Cole.
“The fact they have done so doesn’t tell us anything we didn’t know… The risk is very material but I think compared with what we knew yesterday, we don’t know a lot more today,” he continued.
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The dollar was also being endorsed by the latest U.S. consumer inflation data, which boosted expectations that the U.S. Federal Reserve could hike interest rates again by the end of 2017, stated Masashi Murata, currency strategist for Brown Brothers Harriman in Tokyo.
“U.S. rate rise expectations have risen compared with what was seen in early September, pushing up U.S. bond yields and I think that is supporting the dollar versus the yen,” he quoted.
Sterling reported its best day against the dollar since April on Thursday, following the BoE warned it might increase interest rates for the first time in more than a decade in the “coming months”.
Bitcoin dropped for an eighth straight day close to $3,000 and was on track for its worst week since 2013 after a 25 percent drop since Monday, as China closed another bitcoin exchange and as fears grew of a broader crackdown.