Safe-haven currencies like the Japanese yen jumped to their highest levels in months in the early hours of Friday’s trading after US air strikes on Baghdad airport killed a senior Iranian military official, fueling tensions in the Middle East.
US Treasury bonds, oil and gold prices rose after the announcement that Iranian Major General Qassim Soleimani and Iraqi militia commander Abu Mahdi Al-Muhandis were killed in the attack. The Pentagon confirmed the strike, saying Soleimani was actively working to develop plans to attack Americans in Iraq and the Middle East.
The Japanese yen hit a two-month high when it reached 107.92 against the US dollar, the last rise of 0.5% during the day. The Japanese yen is often seen as a safe haven against economic market risks, given Japan’s position as the world’s largest creditor country. Also, the holiday period in Japanese markets helped to drive up the Japanese yen in light of these market risks.
The Swiss Franc, another safe-haven currency, rose to a four-month high against the euro to 1.0824. The US dollar also hit a one-week high against the euro.
US government bond yields for 10 years fell to a three-week low of 1.814%, after hitting 1.946% the day before. It is worth noting here that bond prices rise with lower returns.
Jerry Street, head of currencies at CIBC, said the decline in US yields showed a reflection of the optimism seen on Thursday. He said that market participants now calculate the risk of reprisals from the Iranian side. “We are still waiting and watching to see if there will be a (reaction) suggested by the headlines.”
The strong US dollar rose against the British pound by 0.2%, bringing the price of the pair to 1.3117 dollars per British pound, and the dollar fell on the other hand against the euro by 0.1%, and the price of the pair reached 85.10.
Traders will be watching for preliminary German inflation figures for December, as economists polled by Reuters expect annual inflation to rise to 1.4% from 1.1% the previous month. Initial data in France showed that inflation exceeded market expectations, rising to 1.6% from 1.2%. Opinion polls expected an increase of 1.4%.