WORLD FOREX: Dollar Climbs Above Y84 On Korea Tensions




The dollar surpassed the Y84 mark Friday for the first time since Sept. 29 as Korean peninsula tensions caused investors to bolt from the yen, and gained against the euro as investors reacted to fresh signs of strain in the euro zone.

Fear of an escalation of Korean tensions has fed a recent push into the dollar from the yen, because of the proximity of Japan to the conflict and the dollar being still considered a safe harbor in times of stress, analysts said.

Explosions were heard in Yeonpyeong Island Friday afternoon, and smoke was visible on the coast of North Korea, three days after a North Korean artillery barrage killed four people on the remote South Korean island. North Korea has warned the U.S. its plans for naval exercises with the South will drive the peninsula "closer to the brink of war," according to Sky News.

The dollar had been under pressure against the yen for most of the year, so this new trend marks a significant reversal, said Steven Englander, head of G10 strategy at Citigroup in New York.

Earlier this year, the yen had gained from worldwide risk aversion, in its traditional role as the ultimate safe-haven currency, while concerns over dollar-diluting Federal Reserve stimulus measures in early fall had also pushed the dollar sharply lower against the yen, said Englander.

"But the arguments they had [for that trade] are now very stale, and now they have a reason to move away from it," with concerns over Korea, he said.

Friday afternoon, the euro was at $1.3231 from $1.3369 late Thursday, according to EBS via CQG. The dollar was at Y84.01 from Y83.56, while the euro was at Y111.16 from Y111.75. The U.K. pound was at $1.5611 from $1.5764. The dollar was at CHF1.0026 from CHF1.0000.

The ICE Dollar Index, which tracks the greenback against a trade-weighted basket of currencies, was at 80.384 from 79.640.

"[A] symphony of negative headlines" from across the world fed a broad move into the dollar Friday, across currency pairs, said Mark McCormick, currency strategist with Brown Brothers Harriman in New York.

The euro sold off nearly 1% on the news from Friday's Financial Times Deutschland claiming euro-zone countries and the European Central Bank are applying pressure on Portugal to accept aid akin to Ireland's discussed rescue package.

Portugal, Spain and the European Commission denied the report. But growing market speculation that Portugal may be the next country to ask for support from its euro-zone neighbors has rocked confidence in the common currency, several analysts said.

News from the euro zone "highlights the fact the fear of contagion is moving to reality," said Camilla Sutton, currency strategist at Scotia Capital in Toronto.

Sterling also traded down by 1% to new two-month lows against the dollar. The dollar traded near two-month highs against the safe-haven Swiss franc.

The U.K. economy is inextricably linked to the roiled euro zone and investors are punishing the sterling for this correlation, said Lena Komileva, head of G7 market economics at Tullett Prebon in London. Specifically, "there is huge exposure by the U.K. banking sector," to Irish government debt, she said.

The strong move into the dollar has created a move away from other safe-haven assets, which include the Swiss franc and gold, said Komileva.

Also, Glenn Stevens, governor of the Reserve Bank of Australia, said no further rate increases are being considered in the near term during testimony to Parliament. That stoked concern that the commodity-driven Chinese global-growth-led economy may be cooling off, a negative omen for a global recovery in general, analysts said. That news caused the Australian dollar to sell off roughly 1.8% against the U.S. dollar.