Forex Yen surges, sterling falls as UK nerves grow
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Forex Yen surges, sterling falls as UK nerves grow
- Forex
[size=28]Yen surges, sterling falls as UK nerves grow
By Reuters / Reuters | July 5, 2016 : 4:45 PM MYTLONDON (July 5): The Japanese yen rose almost 1% against the euro and dollar and sterling fell to its lowest levels since the immediate aftermath of last month's EU referendum as currency markets worried about a handful of major British events on Tuesday.
After a shockingly bad reading of construction industry sentiment on Monday, analysts worry the PMI survey of purchasing managers in Britain's dominant service sector, due at 0930 GMT, will add to growing worries about the economy after the vote to leave the European Union.
Sterling sank to a more than two and a half year low against the euro in early trade in London and was less than half a cent away from a 31-year low of US$1.3122 hit last Monday.
The yen, which dealers say has been capped by persistant Japanese buying of the dollar around 102 yen, gained 0.8% to 101.79. The euro traded flat at US$1.1150.
"The data this morning in the UK is going to be very important," said Kamal Sharma, a currency strategist at bank of America Merrill Lynch in London.
"We've got the overriding dynamics about the politics in the UK. We have the first round of the leadership contest today. There is no obvious catalyst globally but we are going to get this concentration of political event risk in the UK."
Bank analysts say the date for replies to the services survey fell three days after the Brexit vote on June 23, meaning some companies may have factored in the shock of the result to their outlooks for business in the months ahead.
Sterling, which fell 18 cents against the dollar immediately after the vote, has been falling steadily in trade-weighted terms over the past week, weighed down by expectations of cuts in interest rates to support the economy.
Bank of England Governor Mark Carney presents the bank's latest report on financial stability later on Tuesday.
With the yen rising, there was speculation among traders that the Swiss National Bank was holding down the value of the franc, the market's other traditional safe haven for capital in times of global financial stress.
Other currencies that tend to rise when economic times are good, including the Australian and New Zealand dollars, were both down around a quarter of a percent.
A private survey showed that activity in China's services sector rose to an 11-month high in June, but a composite measure of activity fell to a four-month low. That raised fears the services sector may not be able to make up for a prolonged decline in the industrial economy that has pushed China's growth to 25-year lows.
"It appears to be the 'risk-off' effect from China that's bringing the dollar/yen to test the 102 level," Ayako Sera, market economist at Sumitomo Mitsui Trust Bank in Tokyo, said of Asian trading.
Australia's central bank overnight kept its cash rate steady at 1.75%, a widely expected decision given political uncertainty at home and abroad and a lack of up to date information on domestic inflation.
The Aussie initially pulled away from session lows when the Reserve Bank of Australia kept policy steady, but then slipped 0.3% to US$0.7509.
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