Yen near 1-month high vs US dollar as oil rout sours risk sentiment

Tokyo (Jan 13) The yen hit a one-month high against the US dollar on Tuesday, buoyed by steady demand for safe-haven assets against a backdrop of plunging oil prices that has triggered worries about global growth.

In Europe, the focus will be on the pound ahead of U.K. inflation data. Britain's consumer price index (CPI) is forecast to have eased to 0.7 percent in December, hit by an almost 20 percent monthly fall in the price of oil.

A drop below one percent would require BoE Governor Mark Carney to write an explanatory letter to Britain's financeminister and would boost expectations that the bank will wait until the second quarter of 2016 before raising interest rates.

The pound stayed close to 18-month lows on Tuesday, trading at $1.5132, down 0.25 percent on the day. The dollar traded at 118.30 yen after dipping to 117.74, its lowest level since Dec. 17. It was also pegged back by lower U.S. Treasury yields, with the yen getting an additional lift from subdued stock markets.

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"U.S. yields are dropping while stocks are looking less robust,'' said Jeremy Stretch, head of currency strategy at CIBC World Markets.

"The drop in U.S. yields is putting a cap on the dollar,'' he said, adding that a sharp drop in oil prices is being seen by many as boding ill for global growth and demand.

Oil prices continued their rout on Tuesday, with Brent crude and U.S. WTI both falling to their lowest in almost six years. The benchmark prices have plunged 60 percent from their 2014 peaks hit in June.

"Lower oil prices should be good for the U.S. economy, but I think people worry about disinflation, even in the U.S., so the market may be worried that lower inflation will postpone the Federal Reserve's hiking plans,'' said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo. 

"I think the U.S. dollar will recover, but it could take some time,'' he added.

Source: CNBC