The Japanese Yen was on track for its strongest weekly performance since early September, supported by safe-haven demand as a broader shift towards risk aversion sent US Treasury yields tumbling and kept the Dollar near a three-week low.
Currency markets were unsettled by growing doubts about the sustainability of the AI spending boom. With Brent crude futures still trading above $110 a barrel, concerns about weakening economic growth appeared to outweigh fears of rising inflation.
The Yen strengthened by as much as 0.4% on Friday to 156.08 per Dollar, its highest level in more than a month, before surrendering those gains to trade at 156.89 by midday. It was heading for a 0.7% rise over the week.
Data released on Friday showed that Japan’s annual core inflation rose above the Bank of Japan’s 2% target in September for the first time in nine months. The latest figures point to mounting price pressures, strengthening the argument for an interest rate increase in the near term.
Most economists surveyed by Reuters expect the BOJ to leave rates unchanged at its meeting next Friday, before delivering a quarter-point increase in December.
Investors are also preparing for interest rate decisions from the US Federal Reserve and the European Central Bank next week, with both institutions widely expected to keep borrowing costs unchanged in October.
The Dollar index, which tracks the US currency against a basket of major peers, edged higher to 101.64 after hitting 101.44 on Thursday, its lowest level since the start of the month.
US 10-year Treasury yields hovered near a one-month low of 4.9674%, following a sharp decline on Thursday as a stock market sell-off, driven by renewed doubts about the durability of the AI boom, boosted demand for safe-haven government bonds.
The benchmark yield broke above the psychologically significant 5% threshold last month and remained largely above that level until this week. The latest sharp drop in yields has also dampened expectations of interest rate hikes next year, Reuters reports.
Brent crude futures climbed above $114 a barrel, extending a 4% gain from the previous session as Houthi attacks in Saudi Arabia heightened fears of further disruption to energy supplies from the region.
OCBC analysts said that although demand for safe-haven assets is increasing, the currencies benefiting vary depending on the source of market uncertainty.
They said concerns over AI spending are supporting the Yen, while escalating tensions in the Middle East are boosting the Canadian and Norwegian currencies as oil prices rise. Meanwhile, France’s fiscal woes are lending support to the Swiss Franc. The analysts added that AI has increasingly become a double-edged macroeconomic risk for the US Dollar.
The Canadian Dollar strengthened beyond C$1.40 per US Dollar, reaching its highest level in a month. The Swiss Franc was little changed at 0.8211 per Dollar, trading close to its strongest level in a month.
China’s offshore Yuan was broadly steady at 6.6729 per Dollar, remaining near its highest level in more than four years. The Euro was also largely unchanged at $1.121.
Concerns over France’s ability to manage its substantial debt burden have put pressure on French government bonds and fuelled fears of contagion to other heavily indebted eurozone countries, adding to the downward pressure on the Euro.
Elsewhere, the Australian Dollar was little changed at US$0.7015, while the New Zealand Dollar gained 0.2% to US$0.5695.