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Dollar weak around ¥118.70 in late trade on yuan rate cut

JIJI

The dollar was sluggish at levels around ¥118.70 in Tokyo trading late Wednesday, on risk-averse selling triggered by China’s cut in the yuan exchange rate, as well as North Korea’s alleged hydrogen bomb test.

At 5 p.m., the dollar stood at ¥118.74-74, down from ¥119.42-43 at the same time on Tuesday. The euro was at $1.0729-0729, down from $1.0808-0809, and at ¥127.40-40, down from ¥129.08-09.

The Chinese central bank’s midmorning announcement of a lowered reference rate for the yuan sent the U.S. currency to dive below ¥118.40 at one point after hovering just above ¥119 earlier in the morning.

The greenback attracted some repurchases in the afternoon, but its topside remained heavy, also pressured by North Korea’s announcement that it has successfully carried out a hydrogen bomb test for the first time, traders said.

The developments in China and North Korea “came as unexpected selling factors” for the dollar when currency traders were initially on the sidelines ahead of the release later on Wednesday of Automatic Data Processing Inc.’s U.S. private-sector jobs report for December, said an official at a foreign exchange brokerage house.

“With traders having shifted to ‘risk-off’ mode again, the dollar is expected to remain slow to pick up against the yen,” the official said.

“The key point is whether the dollar will be able to stay above the 118-yen line,” a trust bank official said, referring to the Bank of Japan’s tankan quarterly business sentiment survey in December, in which the average assumed dollar rate among major Japanese manufacturers came to ¥118.00 for the second half of fiscal 2015, ending in March.

Meanwhile, the euro remained under selling pressure, following a weak December reading in the eurozone consumer price index released the previous day.

“Speculation is growing that the European Central Bank may further loosen monetary policy,” another currency broker said.