LONDON: The yen climbed to a six-week high against the dollar on Wednesday as investors already shaken by Greece's debt crisis were further rattled by plunging Chinese stocks, pushing them to seek out traditional safe havens.
The euro stabilised at around $1.10, having been boosted a touch late on Tuesday after member states gave Athens until the end of the week to come up with a proposal for sweeping reforms in return for loans.
Chinese stocks plunged again on Wednesday after the securities regulator warned investors were in the grip of "panic sentiment" and the market showed signs of freezing up as firms scrambled to escape the rout by having their shares suspended. The yen gained as much as 1 percent versus the dollar in response to 121.31, its strongest since late May.
"The yen is a classic funding currency for carry trades - in a risk intolerant environment it's always going to go up," said Simon Derrick, head of currency research at Bank of New York Mellon in London.
"That is also, perversely, why the euro has been doing relatively well, because it too is used as a funding currency."
In a carry trade, investors borrow in a low-yielding currency and then sell it in order to buy riskier high-yielding currencies, but in times of market uncertainty, those carry trades tend to get unwound.
The Swiss franc, another traditional safe-haven currency, also rose but its gains were limited, with speculation the Swiss National Bank was intervening to stem the currency's appreciation. "The yen continues to be the safe-haven currency of choice.
The Swiss franc is not doing too badly but of course we have the SNB trying to hold it up, so it doesn't move as smoothly," said Alvin Tan, FX strategist at Societe Generale in London.
Riskier commodity currencies sank across the board, with the Australian dollar -- often used as a China proxy -- hitting a six-year low of $0.7372. Oil-rich Norway's crown also sank by over 1 percent to a six-month low of 9.1125 crowns per euro as crude prices fell.
The wave of global uncertainty also left traders wondering whether US Federal Reserve meeting minutes due later, normally a market mover, would provide much value considering the real-time risks.
The dollar was 0.2 percent lower against a basket of major currencies at 96.677.
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