LONDON: The Japanese yen rose on Friday and is on track for its biggest monthly gain in three months as a global rush to perceived safe-haven assets sapped investor appetite on stock markets.
August was a particularly bad month for equities as international trade tensions and fears over the global economy encouraged investors into bonds and gold, perceived as safer bets in times of economic and political strife.
The yen, which typically gains during periods of economic and geopolitical uncertainty, edged 0.1% higher against the dollar to 106.39 yen. It is up more than 2% in August for its biggest monthly gain since May.
The gains were fuelled by a global rally in government debt, with yields in major developed markets pushing deeper into negative territory. For a graphic, click
“Trade war thus far caused lower rates, not recession," Bank of America Merrill Lynch strategists, led by Michael Hartnett, said in a report.
Washington is due on Sunday to start imposing 15% tariffs on $125 billion of goods from China, affecting consumer items from smart speakers to sneakers.
Investors fear the intensifying trade dispute could lead the U.S. economy into recession – a scenario that looks more likely after the U.S. bond yield curve inverted this week. Inverted yield curves are widely considered highly reliable indicators of recession.
“The talking point is still the U.S. yield curve inversion and whether the U.S. economy heads into a recession … In short, the atmosphere is not so good," said State Street's Tokyo branch manager Bart Wakabayashi.
The euro, meanwhile, plunged to a one-month low against the dollar as investors looked for aggressive easing by the European Central Bank and ignored doubts among some policymakers over the need for more stimulus.
Poor euro zone economic data on Thursday reinforced views that the ECB would cut its benchmark interest rate and announce a new round of quantitative easing at its September meeting.
German inflation slowed in August and unemployment rose, providing further evidence that Europe's largest economy is slowing.
More broadly, year-on-year inflation in the entire euro area was unchanged at 1% in August, but that failed to make an impression on the common currency.
Christine Lagarde, the ECB's next president, said the central bank still has room to cut rates if necessary, though divisions clearly remain within the ECB.
The euro was down 0.1% at $1.1043 after falling to $1.1033, its lowest since Aug. 1. It has shed nearly 12% against the dollar since the start of last year.
Elsewhere, the pound stabilised despite growing probability of Britain crashing out of the European Union on Oct. 31 without a divorce deal.
British Prime Minister Boris Johnson, a Brexiteer, received royal approval this week to suspend parliament for a month, which analysts identify as a move to dodge a possible no-confidence vote in his government and strenghten his negotiating hand in Brussels.
Sterling's reaction, however, was fairly modest, remaining quite a way off the 2-1/2-year low of $1.2015 reached this month.
An index that tracks the dollar against a basket of six other currencies was flat at 98.557, down from a one-month high of 98.609 in Asian trading. The dollar was supported by investors repositioning funds in their portfolios, analysts said.
“The dollar is getting bid from month-end flows, but the euro side of the equation is compromised by what appears to be a set of lacklustre economic data in the eurozone," said Jeremy Stretch, head of G10 forex strategy at CIBC Capital Markets.
“This opens a debate of how aggressive the ECB" may be in the coming months, Stretch said.
Money markets are pricing in 15 basis points of rate cuts at the next ECB meeting on Sept. 12, pushing rates further into negative territory.
Focus is also moving to weekend data from China, especially its official manufacturing survey, which is expected to show factory activity contracted in August for the fourth straight month.
The yuan is set for its biggest monthly decline since 1994. It has lost about 3.7% against the dollar after trading as low as 7.185 this month.