SHANGHAI: The Japanese yen hit its strongest level in more than a month on Friday, buoyed by safe-haven flows due to a fresh bout of risk aversion that also sent US Treasury yields sharply lower, pushing the dollar to a nearly three-week trough.
The moves in the currency markets were driven by doubts over the AI spending boom even as Brent crude futures stay above US$110 per barrel, suggesting concerns over economic growth outweighed inflation worries.
The yen strengthened 0.3% on Friday to 156.28 per dollar, leading gains among major currencies. It was set for a 1% gain for the week, its strongest weekly rise since early September.
The dollar index =USD, which measures the greenback against a basket of currencies, was at 101.52, after touching its lowest level since the beginning of the month at 101.44 on Thursday.
US 10-year Treasury yields US10YT=RR hovered near a one-month low at 4.953%, after tumbling on Thursday when equities sold off on renewed concerns about the sustainability of the AI boom, burnishing the safe-haven appeal of sovereign debt.
"Whether yields stay below 5% is another question," said ING analysts said, adding they still expect the 10-year yield to snap back above 5% eventually, given inflation, fiscal deficit and AI trends.
"The risk-off environment takes pressure off the Fed to hike next week. But even given that, we'd not be loading up on duration here, at least not just yet," the analysts said.
Brent futures LCOc1 pushed above $114 per barrel, extending a 4% climb from the previous session after Houthi attacks in Saudi Arabia stoked concerns of further disruption to energy supplies from the region.
RISING DEMAND FOR SAFETY
While demand for safety is intensifying, the beneficiaries differ depending on the risk, OCBC analysts said.
AI jitters favour the yen, Middle East tensions support the Canadian dollar and Norwegian crown due to rising oil prices, while French fiscal stress benefits the Swiss franc, they said, adding that for the US dollar, AI had become an increasingly two-way macro risk.
The Japanese yen posted its strongest daily gain in almost a month on Thursday, ahead of the Bank of Japan's policy meeting next week.
Data on Friday showed, Japan's annual core consumer inflation exceeded the central bank's 2% target in September for the first time in nine months, a sign of broadening price pressure that bolsters the case for a near-term interest rate hike. The majority of economists polled by Reuters except a hold on Friday of next week, followed by a quarter-point hike at the following meeting in December.
The Canadian dollar CAD=D3 firmed past C$1.40 against the greenback, up 0.1% to its strongest level in a month. The Swiss franc CHF= was steady at 0.8199 per dollar, near its firmest level in a month.
China's offshore yuan CNH=D3 was little changed at 6.6715 per dollar, its strongest level in more than four years. The Euro EUR=EBS was largely flat at $1.122.
Worries about France's ability to tackle its huge debt burden have hurt French government bonds and raised concern about other heavily indebted euro-area countries, weighing on the euro.
The European Central Bank is expected to hold its benchmark rate at 2.5% next week.
The Australian dollar AUD=D3 held steady at $0.7016, while the Kiwi dollar NZD=D3 edged up 0.1% to $0.5687.