Dollar, yen dip on month-end rebalancing

FILE PHOTO: U.S. Dollar banknotes are seen in this photo illustration taken February 12, 2018. REUTERS/Jose Luis Gonzalez/Illustration

(Reuters)


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Estimated read time: 3-4 minutes

NEW YORK (Reuters) — The dollar dropped on Friday while the Japanese yen sank to its lowest since mid-November as investors rebalanced portfolios for month-end.

Bitcoin also jumped to a two-week high as a movement by retail investors to pile into certain stocks expanded to cryptocurrencies.

The greenback has been largely rangebound against a basket of currencies for the past two weeks as investors evaluate whether a selloff that sent the currency down almost 7% last year is likely to continue.

It fell 0.15% on Friday to 90.421 against a basket of currencies. The index is up 1.34% from a three-year low of 89.206 reached on Jan. 6.

"People are waiting for fresh drivers and I don't think we get them 'til next month," said Marc Chandler, chief market strategist at Bannockburn Global Forex in New York.

"The question is whether the dollar's correction continues or it is over, and I think that the jury is still out."

The yen underperformed on Friday even as risk appetite worsened, hitting a two-month low versus the dollar and a nearly three-year low against the Swiss franc.

Analysts attributed the move to several factors, including the dollar's yield advantage over the Japanese currency and month-end portfolio reshuffling.

Bank of Japan policymakers discussed the merits of allowing long-term yields to move more flexibly around the bank's target, a summary of opinions at their January meeting showed on Friday.

Some of the move is also likely due to large short positions against the greenback being squeezed, said Chandler. "The market was a bit vulnerable to this," he said.

The dollar was last up 0.51% at 104.76 yen. It earlier rose to 104.94, approaching the 105 level, which Chandler says is psychologically important.

"It's a very interesting move especially given that at the same time global equity indices would suggest that risk sentiment is not improving as much to justify the move," said Valentin Marinov, head of G10 FX research at Credit Agricole, referring to the yen's drop versus the dollar.

The Japanese currency typically gains a safe-haven bid when risk sentiment sours.

Stocks fell on Friday after COVID-19 vaccine data from Johnson & Johnson hurt sentiment and added to worries over a growing standoff between hedge funds and retail investors.

Bitcoin was boosted after Tesla CEO Elon Musk tagged the cryptocurrency in his Twitter biography. Musk wrote simply "#bitcoin" in his biography on the social media site.

It was last up at 12% at $37,496.

Assets that would benefit from decentralized finance are gaining traction as some retail traders express frustration that online trading brokers including Robinhood have curtailed their ability to trade some stocks and cryptocurrencies.

The dollar dipped 0.55% to a three-week low against the Chinese yuan in offshore markets.

"At the margin, tightening money market conditions in China, which are boosting local rates and helping lift the CNH out of its recent consolidation against the USD, may be adding to broader market anxieties and weighing on USD sentiment," analysts at Scotiabank wrote in a report on Friday.

China's short-term money rates rose for a fifth straight day on Friday, busting above the central bank's interest rate corridor ceiling, as an insufficient liquidity injection raised speculation that a shift to a tighter policy may be underway.

(Additional reporting by Tommy Wilkes in London; Editing by Jan Harvey)

© Copyright Thomson Reuters 2021

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Karen Brettell

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