News Column

Dollar drops into upper 101 yen as Ukraine, Iraq quash risk appetite

August 7, 2014

The U.S. dollar fell into the upper 101 yen zone in Tokyo on Friday morning as risk aversion ran high, with concerns over the repercussions of the Ukraine crisis on global economic health and the worsening conflict in northern Iraq driving demand for the yen, seen as a safe-haven asset.

At noon, the dollar fetched 101.76-78 yen compared with 102.05-15 yen in New York and 102.28-29 yen in Tokyo at 5 p.m. Thursday.

The euro was quoted at $1.3362-3362 and 135.98-136.02 yen against $1.3359-3369 and 136.35-45 yen in New York and $1.3372-3373 and 136.77-81 yen in Tokyo late Thursday afternoon.

As the dollar plunged below the 102 yen mark in the morning, the euro slipped below 136 yen for the first time since last November. The Nikkei stock index also tumbled to a two-month low.

A flight to quality drove traders away from the euro in particular and toward the yen amid concerns about the impact of Russia's retaliatory steps against sanctions imposed by the United States and Europe, said Minori Uchida, head of Tokyo global market research at Bank of Tokyo-Mitsubishi UFJ.

In a further blow to risk sentiment in midmorning, U.S. President Barack Obama authorized airstrikes against militant targets in northern Iraq, seeing long-term U.S. Treasury yields plummet.

"But there is expected to be some opportunistic buying back of the dollar as well, and as the dollar is heavily supported in the lower 101 yen zone, I don't expect it to fall much further in the afternoon," Uchida said.

The euro held steady against the dollar in Tokyo after weakening slightly following the European Central Bank's policy meeting overnight. As expected, the ECB did not make policy changes, but the wording of ECB President Mario Draghi's caution over the Ukraine crisis further dampened demand for the common currency, Uchida said.

"The result of Draghi's comments is that with Russia's retaliatory response to sanctions the crisis has moved beyond geopolitical risk factors to causing serious economic damage to the eurozone," Uchida said.

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Source: Japan Economic Newswire

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