February 28, 2017 / 9:19 AM / 9 months ago

FOREX-Yen inches higher ahead of Trump speech

* Dollar steadies ahead of Trump speech to Congress

* Supported by signs of more detail on tax plans

* Fed’s Kaplan points to rate rise “soon”, no comment on March

* European political worries still high on the agenda

* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh

By Patrick Graham

LONDON, Feb 28 (Reuters) - Japan’s yen was the only substantial mover among major developed world currencies on Tuesday, rising a third of a percent against the dollar and euro as investors sought safe havens for their money before a speech to Congress by President Donald Trump.

Indications that Trump would use the set-piece to preview elements of his plans to cut taxes for the middle class and make U.S. companies more globally competitive helped the dollar recover losses in the U.S. session on Monday.

Added to a promise from another Federal Reserve policymaker that interest rates would rise “soon”, that returned markets to the assumptions of a reflating of the U.S. economy that have swirled since last November, prodding short-term U.S. market interest rates higher overnight.

But the details of Trump’s speech, and his ability to deliver legislation, have also grown increasingly to worry markets at a time when nerves are growing around politics in Europe.

That has left investors often seeking the security of the yen and safe haven assets including Treasuries and German Bunds in the past month.

“There were a whole list of things on the table and at the moment we have a market that is looking for greater clarity on those topics,” said Simon Derrick, head of global market research with Bank of New York Mellon in London.

“If I had to call it, I think the dollar weakens because I think that, not withstanding the signals, it is probably beyond March before the Fed will hike. I also think the downward pressure on yields (globally) will continue.”

The yen rose a third of a percent on the day to 112.39 yen per dollar and 119.01 yen per euro.

The dollar index rallied to a 14-year high soon after Trump won the U.S. election in November, boosted by hopes that he would introduce large fiscal stimulus and reflationary plans.

But the greenback sagged in January and the first half of this month in the absence of specifics on tax reform. It is set to end February with a gain of just over 1 percent against the basket of currencies that measures its broader strength.

Despite that, the two currencies long seen as most exposed to Trump’s intent to reorder U.S. trade relations, the peso and China’s yuan, are both up. The peso is on course for its best calendar month since last March and the onshore yuan for its second straight monthly gain.

That might be undone if the president, for example, indicates he will make good on his earlier promises to label China a currency manipulator. Some dealers in Asia said the yen might also be exposed.

“Obviously if Trump mentions any specific countries, their currencies will be affected. Countries likely to attract his attention are China, Germany, Japan and Mexico, which all have large trade surpluses versus the United States,” said Daisuke Karakama, market economist at Mizuho Bank.

“He has mentioned China and Japan quite often as of late, so dollar/yen is likely to be affected the most if he speaks about these countries.”

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Shinichi Saoshiro in TOKYO; Editing by Janet Lawrence)

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