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Dollar and yen rose on Thursday

The dollar and the yen climbed on Thursday after the arrest in Canada of a top executive of China’s technology giant Huawei prompted fears of a flare-up in trade tensions between the US and China.

The dollar is being pressured over fears of a possible recession in the United States.

But the arrest of Huawei Technologies Co Ltd’s chief financial officer increased safe-haven demand for the currency as doubts emerged over a truce on trade struck days ago between President Donald Trump and Xi Jinping.

“Political quarrels outside the trade arena could jeopardize the success of the trade talks… This is causing risk aversion to rise again,” said Esther Maria Reichelt, an FX strategist at Commerzbank in Frankfurt.

As investors grew cautious and pulled back from riskier assets the Japanese yen JPY=EBS, often sought in times of market unrest, climbed 0.4%.

Sharp losses in technology shares pulled down benchmark stock indexes in China as the Chinese yuan CNH=D3 slid 0.7% against the dollar to 6.9037, its biggest daily drop since August.

The Australian dollar AUD=D3 also dropped more than 1%, demonstrating its vulnerability to a worsening trade conflict due to its export-oriented economy.

Against a basket of six competitors .DXY, the dollar edged up 0.2% to 97.202. The currency has dropped 0.4% this week but is only half a percent off a 17-month peak of 97.693 hit on Nov. 12.

The dollar dropped earlier this week after the thaw of trade tensions between Washington and Beijing.

He is also been pressured by worrisome signs in the US bond markets for economic growth and Federal Reserve signals that a slowdown in the pace of interest rate rises may be expected.

“The dollar could remain under pressure until this month’s Fed meeting when the market will see the Fed’s stance on policy and the economy,” said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

“The recent reaction to the U.S. yield curve inversion appears a little hysterical, but the dollar will not be given the all clear sign until the Fed meeting is hurdled.”

Fed policymakers are still expected to raise interest rates again at their Dec 18-19 meeting but the focus of the market is on how much interest rates will follow in 2019.

The Canadian dollar dropped as much as 0.6% to $1.3437, while the Norwegian crown NOK=D3 slid 0.7% against the dollar, pulled down by fraying market sentiment and weak oil prices.

The yen rose to 112.645 against the dollar and made strides against most of its peers.

The euro was lower at $1.1328 EUR=EBS after retreating from this week’s high of $1.1419 scaled on Tuesday.

 

Source: Reuters