Euro, yen gain as U.S. political uncertainty weighs on dollar

The euro and the Japanese yen gained in thin trading on Monday as concerns about a partial U.S. government shutdown weighed on investor sentiment and the dollar, although Chinese plans to cut tariffs on a range of goods helped to lift the mood.

Trading volumes were thinning out with most global markets set to shut for Christmas, while Japan was closed on Monday for a holiday.

After a bruising few weeks in which worries about spluttering global growth have knocked markets lower, investors were reluctant to take on many new risks at the end of the year.

A less dovish than expected Federal Reserve meeting also heightened fears the U.S. central bank will be raising interest rates into a weakening U.S. economy.

A partial U.S. government shutdown, which could continue to Jan. 3, when the new Congress convenes and Democrats take over the House of Representatives, has also contributed to the souring of risk sentiment.

The Japanese yen, perceived as a safe place to put money in times of uncertainty, rose 0.3 percent against the dollar to 110.81, bringing its gains in the last six days to 2.5 percent.

The euro rose 0.2 percent and last fetched $1.1398.

Against a basket of its rivals, the dollar slipped 0.2 percent to 96.72.

“The global equity market rout has been driving sentiment in the currency markets. I don’t see any significant rebound in risk sentiment yet,” said Stephen Innes, head of Asia trading, Oanda.

The Swiss franc, another currency viewed as a safe-haven, rose 0.2 percent versus the dollar but was down against a broadly stronger euro.

There was some improvement in the mood, however, after China unveiled plans to remove import and export tariffs in 2019 on a range of goods, soothing fears about an ongoing trade dispute between Chin and the United States.

“We are seeing some positive developments. “We are seeing the Aussie dollar doing a little bit better,” said Alvin Tan, an FX strategist at Societe Generale.

China’s offshore yuan rose 0.3 percent to 6.9055.

The Australian dollar rose half a percent to $0.7067. The Aussie is very sensitive to Chinese economic developments given China is the country’s largest trade partner.

Sterling rose 0.3 percent versus the dollar to $1.2671, although Tan at Societe Generale noted the recent recovery in the pound was more to do with dollar weakness than more positive sentiment towards the British currency.


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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell