Yen gains as euro and yuan troubled by European vote and trade

LONDON: The Japanese yen strengthened on Friday, attracting safe-haven buying amid concerns over trade tensions and impending European Parliament elections.

US-Chinese trade hostilities have had little effect on currencies, but traders have bought the yen, a refuge in times of stress because of Japan's status as the world's largest creditor.

"Despite yesterday's rebound, we are still reluctant to trust a long-lasting reversal in risk appetite. With the US (verbally) attacking China, and China willing to respond, we cannot assume that the worst is behind us," said Charalambos Pissouros, a senior market analyst at JFD Brokers.

The Japanese currency was up 0.3% on Friday against the dollar at 109.58 and is up around 1.3% this week.

The yen has also benefited from falling government bond yields, which in some cases are now even below the historically low Japanese government borrowing costs.

German 10-year bond yields, for example, are now five basis points below the Japanese equivalent for the first time since October 2016.

"The yen is the pick of the bunch this week and this month as bond yields have fallen everywhere," Societe Generale currency analyst Kit Juckes said earlier this week.

The euro, meanwhile, is under pressure from worries about next week's European parliamentary elections and comments from Italian Deputy Prime Minister Matteo Salvini.

Salvini said on Thursday that he would "tear apart" EU budget rules that were "strangling" Italy if his party did well in the elections.

The euro dropped to its lowest since May 6 and was a touch lower at $1.1158, down 0.6% this week.

The dollar has also benefited as a safe-haven currency even with the United States and China locked in a trade dispute. It was bolstered on Thursday by data that showed US homebuilding increased more than expected in April.

On Friday, the dollar held near a two-week high against its peers, supported by the strong data and a bounce in Treasury yields.

The dollar index against a basket of six major currencies reached 97.921, its highest since May 3.

The offshore Chinese yuan weakened to as low as 6.9497 against the dollar, its weakest level since Nov. 30.

China's central bank will use FX intervention and monetary policy tools to ensure the yuan does not weaken past the 7-per-dollar key level in the immediate term, three people familiar with the central bank's thinking said.

The Australian dollar extended overnight losses and fell to a 4 1/2-month trough of $0.6883. The Aussie fell the previous day after soft domestic employment data raised expectations the Reserve Bank of Australia would cut interest rates.

Australia holds a parliamentary election on Saturday, but analysts said US-China tensions were likely to remain the biggest influence on its currency.