The yen surged to a three-month high against the dollar on Thursday and the Swiss Franc hit a three-week high against the dollar as investors bought safe-haven currencies amid fears that the Sino-US trade conflict would escalate.
China and the United States began two days of talks in Washington on Thursday, and traders are watching to see if officials from both countries can rescue a trade agreement to prevent the United States from further raising tariffs on Chinese imports to the United States.
"Trade news really dominates the market this week," said Minh Trang, a senior foreign exchange trader at Silicon Valley Bank. "Traders are turning to safe-haven currencies and putting money into those currencies."
The exchange market reacted moderately to the latest developments in the trade situation this week, but the jumps in the yen and the Swiss Franc on Thursday suggested nervous tensions among investors.
In the middle of the afternoon, the yen rose 0.35% against the dollar JPY = to 109.7 yen in some of the intraday gains. The dollar was trading at 1.015 francs against the Swiss franc, hitting its lowest level since April 18. Some investors expect the two hedge currencies to have room for further strength.
"The foreign exchange market still needs to catch up with recent fluctuations in other markets. There's no doubt that we don't see the volatility we expect in a situation like this, "said Dean Popplewell, chief foreign exchange strategist at Oanda.
"Buying safe-haven currencies benefits the Swiss franc or the Japanese yen, and there is still room for these two currencies to rise so that their real gains fully absorb trade warfare factors."
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