The Japanese yen was set for its biggest surge against the dollar in over two years on Tuesday, when concern over US House of Representatives Speaker Nancy Pelosi’s trip to Taiwan drove investors to safe-haven currencies.
The currency has risen by almost 4.5% over the five last trading sessions, reaching a high of almost 130.4 yen to the dollar in London.
Jitters about the impact of Pelosi’s impending visit to Taiwan weighed on stocks and sent investors scurrying into US Treasuries.
The benchmark 10-year Treasury yield fell to 2.516%, its lowest since April, further narrowing the gap between 10-year US debt and equivalent Japanese bonds to 236 basis points (bps), the lowest since early April.
The US economy shrank for a second straight quarter, data released last week showed, intensifying an ongoing debate over whether the country is, or will soon be, in recession, with traders keenly awaiting the next US jobs data on Friday.
“US data releases and the reaction in US yields through the end of this week will be critical as JPY momentum has built a considerable head of steam here,” John Hardy, head of FX strategy at Saxo Bank, said.
The Australian dollar fell nearly 1.5% on Tuesday after the Reserve Bank of Australia raised rates by 50 bps to 1.85%, in line with expectations.
The bank said that even though more tightening was expected, it was not on a pre-set path, which some investors interpreted as future policy tightening may not be as aggressive.
China’s offshore yuan touched 6.7957 per dollar, its weakest since mid-May. Some analysts attributed this partly to the tensions around Pelosi’s visit, as well as poor economic data from China over the weekend.
The dollar index, which measures the greenback against six peers, rose 0.3% to 105.65.
- Reuters, with additional editing from Alfie Habershon