Yen set to snap nine weeks of losses, dollar holds firm

The yen is poised to snap a nine-week losing streak on Friday on weakening risk sentiment, while another Wall Street selloff drove flight-to-safety bids to the dollar, which held near 20-year peaks.

The dollar regained a little ground on the Japanese currency and was last at 128.9 per dollar after hitting a two-week low of 127.5 overnight.

However, the dollar is still down 1.2% against the yen this week, its first week of declines since early March. The euro has fallen 2.6% versus the yen this week, its biggest drop also since early March as the common currency has been a major victim of the “risk off” mood.

“The yen is perhaps the most obvious signal of a shift from a world where yields were dominant and risk was resilient (yen negative), to a world this week where the dominant force is sour risk appetite driving yields lower (yen positive),” said Alan Ruskin, macro strategist at Deutsche Bank (ETR:DBKGn) in a note.

The benchmark U.S. 10-year yield was 2.8877% on Friday, slightly higher, but still down sharply from Monday’s high of 3.203%.

Rising U.S. yields at a time when the Bank of Japan was intervening to keep Japanese benchmark yields pinned down caused the yen to soften this year.

Investors are continuing to move towards safe-haven assets fearing central bank rate hikes to constrain inflation could hit global economic growth while MSCI’s gauge of stocks around the world fell to its lowest overnight since November 2020.

Asian shares and U.S. futures edged a little higher on Friday, but analysts saw little sign of a broader recovery.

Investors are still assessing how aggressive the Federal Reserve’s policy path will be after the U.S. central bank raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years.

Expectations are completely priced in for another hike of at least 50 basis points at the central bank’s June meeting, according to CME’s FedWatch Tool.

The euro was at $1.0394, up 0.16%, holding above its 2017 low of $1.034.

The weak euro kept the dollar index at 104.63, just off its overnight 20-year peak of 104.92.

Sterling hunkered down at $1.2221, hurt after data Thursday showed Britain’s economy unexpectedly shrank in March, and the Aussie dollar was also bruised at $0.6886.

Crypto markets were steadier on Friday after a week of turmoil, as the risk-off mood combined with the spectacular collapse of stable coin TerraUSD.

The sell-off has taken the combined market value of all cryptocurrencies to $1.2 trillion, less than half of where it was last November, based on data from CoinMarketCap, and sent bitcoin to as low as $25,401.05 on Thursday, its lowest level since Dec. 28, 2020.

But things were calmer in early trading on Friday with bitcoin up 5.3%, trading around $30,400.