Yen near one-month high, euro on defensive over European bank worries

EghtesadOnline: The yen flirted with one-month highs on Wednesday, recovering from losses following Tuesday's U.S. presidential debate, and the euro retreated on concerns over the health of the European financial system.

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28 September 2016

The euro EUR= dropped to $1.1218 from Monday's high of $1.1280 as share prices in Deutsche Bank (DBKGn.DE), Germany's largest lender, fell to a record low on concerns about a $14 billion demand from the U.S. Department of Justice, reports Reuters.

That also hurt broad risk sentiment, helping to support the yen, which often tends to rise at a time of economic stress.

The dollar JPY= traded at 100.41 yen, having dropped from Tuesday's high of 100.99 and holding near a one-month low of 100.085 also touched on Tuesday.

A fall below that level, and below psychological support at 100, could open the way for dollar/yen to test support at 99, a low marked in the aftermath of the UK's "Brexit" vote.

Shinichiro Kadota, chief FX strategist at Barclays, said the dollar looks likely to be supported above 100 for now, but added he did not see rapid gains.

"Even after some strong U.S. economic data, the dollar couldn't gain much yesterday, which seems to suggest the dollar has limited upside for now," said Kadota, chief FX strategist at Barclays in Tokyo.

U.S. consumer confidence improved while the service sector survey also came in better than expected.

Fed Vice Chairman Stanley Fischer said the Federal Reserve should avoid raising interest rates too much, a comment that helped to push down 10-year U.S. bond yields to a three-week low, also undermining the dollar.

While the Fed's policy statement last week suggested the likelihood of a rise in U.S. rates in December, money market futures have since then been trimming the possibility of a December hike.

The futures now price in a less than 50 percent chance of a rate increase by December, compared to over 60 percent after the Fed's policy meeting last week.

Fed Chair Janet Yellen will give semi-annual testimony later in the day before a Congressional committee, though her main focus is expected to be financial regulation.

Still, with a Fed rate hike seen in December at earliest, the U.S. Presidential election in early November is likely to attract more attention in coming weeks, some market players noted.

The Mexican peso MXN=D2 posted its biggest daily gain in seven months on Tuesday, reflecting perceptions that Democratic candidate Hillary Clinton beat Republican Donald Trump in Tuesday's presidential debate, a good omen for undisrupted trade with Mexico.

Markets have tended to see Clinton as the candidate of the status quo, while few are sure what a Trump presidency might mean for U.S. foreign policy, international trade deals or the domestic economy.