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U.S. Dollar Rises, Yen Falls Despite Risk-off Sentiment

2018-12-21 14:27:02Trading Strategies
U.S. Dollar Rises, Yen Falls Despite Risk-off Sentiment

The U.S. dollar rose while the Japanese yen slipped on Friday even after Asian stocks and U.S. equities fell for a second day after the Federal Reserve hiked rates.

The U.S. dollar index that tracks the greenback against a basket of other currencies gained 0.2% to 95.938 by 12:54 AM ET (05:54 GMT).

The U.S. Fed took the target range for its benchmark fund rate to 2.25-2.5% on Wednesday. It reduced its 2019 median forecast for interest rates to 2.9% from a previous estimate of 3.1%, hinting at two rates hikes in 2019. That's below the three rate hikes previously indicated in the Fed's September projections.

The Japanese yen, a safe-haven asset, fell against the dollar as the USD/JPY pair gained 0.14% to 111.45.

"We are seeing a classic case of 'risk off' lifting the yen against the dollar, something that had not taken place so often in the recent months," said Junichi Ishikawa, senior FX strategist at IG Securities in Tokyo.

"U.S. markets, particularly equities, will continue dictating direction for the dollar in the near term. We may have to wait until the new year for risk aversion to settle."

Overnight, the Dow and Nasdaq posted their lowest closes since October 2017, while the S&P 500 finished at its lowest level since September 2017.

Asian stocks also traded mostly lower on Friday, with Chinese equities down more than 1% by midday.

In other news, U.S. President Donald Trump will not sign a Senate-passed spending bill, House Speaker Paul Ryan said Thursday. The news provided some support demand for safe-haven currencies like the yen and Swiss franc earlier in the day.

The GBP/USD pair was little changed Brexit and domestic political uncertainties.

“As the pace of Brexit and domestic political developments slows, we expect cable to grind higher in line with our expectation for a broadly weaker USD post-FOMC," TD Securities said in a note.

Elsewhere, the USD/CNY pair gained 0.12% as the People's Bank of China (PBOC) set the yuan reference rate at 6.8825 vs the previous day's fix of 6.8936