LONDON: The yen rose to a one-month high against the dollar and traded near 11-month peaks against the euro on Monday, as investors turned cautious on concerns about the health of the global economy.
European stocks opened lower and German Bunds moved higher, accentuating regional flows towards safer currencies like the yen and the Swiss franc after rating agency S&P on Friday downgraded Finland and cut its outlook on France.
With market holidays in Tokyo and New York also boosting volatility, the dollar dipped after Federal Reserve officials warned at the weekend that if the global recovery stumbled, it could delay an increase in US interest rates.
It was down 0.3 percent to 107.38 yen, after falling as low as 107.06 yen, its weakest level in about a month and well off a six-year high of 110.09 yen on Oct. 1.
"We look for further yen upside against the dollar in coming weeks, as US (interest) rates are likely to adjust near-term lower," said Petr Krpata, currency strategist at ING. "For dollar/yen, 107 yen could be tested again today."
The euro rose 0.3 percent against the dollar but was slightly lower against the yen at 135.90 yen, having dropped to 135.56 yen, its lowest since last November.
European Central Bank council member Ewald Nowotny said the euro was very likely to keep weakening against major currencies.
JITTERY MARKET The dollar has struggled to gain traction, with investors trimming favourable bets last week after dovish-leaning minutes of the US Federal Reserve's September meeting prompted the market to push back the expected timing of a Fed rate hike.
A drop in US equities futures on Monday provided broad support for the yen, said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore.
"It's definitely a risk-off move and we will have reduced liquidity with the US and Japan on holiday," Halley said.
Japanese markets were closed for a public holiday. In the United States, the bond market will be closed but the stock market open.
Investors often sell the low-yielding yen in carry trades to fund their investment in higher-yielding currencies and assets. The yen tends to get a boost if worries about global growth leads to a worsening of risk sentiment and triggers an unwinding of such bets.
In a sign of the jittery market mood, Wall Street's fear gauge, the CBOE Volatility Index, touched a near two-year high of 22.06 on Friday. Big swings in stock markets often spill over to the currency market and make yen-funded or euro-funded carry trades appear risky.
Earlier on Monday, the yen scaled a six-month high against the growth-linked, higher-yielding Australian dollar, before easing.
The Aussie recovered both against the dollar and the yen after data showed that both Chinese exports and imports exceeded market expectations in September. The Aussie dollar is sensitive to data out of China, the biggest buyer of Australian commodity exports.
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