Market nerves prop up safe-haven dollar, yen

© Reuters. A money changer counts U.S. dollar banknotes at a currency exchange office in Ankara, Turkey November 11, 2021. REUTERS/Cagla Gurdogan/Files

By Alun John

HONG KONG (Reuters) - The yen held most of its overnight gains on Friday, after falling U.S. yields and market jitters propped up the Japanese currency while another Wall Street selloff drove flight-so-safety bid to dollar, which remains near 20-year high peaks.

The yen was at 129.14 per dollar on Friday morning, softening on the day after it had reached a two-week peak of 127.5 overnight.

Thursday's 1.2% decline for dollar/yen was its biggest daily percentage fall this year. The euro/yen cross declined 2.5%, its biggest daily percentage fall since 2016 as the common currency a victim of the "risk off" mood.

"The yen is perhaps the most obvious signal of a shift from a world where yields were dominant and risk was resilient (yen negative), to a world this week where the dominant force is sour risk appetite driving yields lower (yen positive)," said Alan Ruskin, macro strategist at Deutsche Bank (ETR:DBKGn) in a note.

The benchmark U.S. 10-year yield was 2.8822% having declined each session this week from Monday's high of 3.203%.

Rising U.S. yields at a time when the Bank of Japan was intervening to keep Japanese benchmark yields pinned down caused the yen to soften this year.

Investors are continuing to move towards safe-haven assets fearing central bank rate hikes to constrain inflation could hit global economic growth while MSCI's gauge of stocks around the world fell to its lowest level overnight since November 2020.

After the Fed raised its benchmark overnight interest rate by 50 basis points last week, the largest hike in 22 years, investors are assessing how aggressive the central bank policy path will be.

Expectations are completely priced in for another hike of at least 50 basis points at the central bank's June meeting, according to CME's FedWatch Tool.

The euro was at $1.038 approaching its 2017 low of $1.034. A break past that would be its lowest in nearly 20 years.

The weak euro kept the dollar index at 104.75, just off its overnight 20-year peak of 104.92.

Sterling hunkered down at $1.2206, and the Aussie dollar was also bruised at $0.6887.

Crypto markets were steadier on Friday after a week of turmoil, as the risk-off mood combined with the spectacular collapse of stable coin TerraUSD.

The sell-off has taken the combined market value of all cryptocurrencies to $1.2 trillion, less than half of where it was last November, based on data from CoinMarketCap, and sent bitcoin to as low as $25,401.05 on Thursday, its lowest level since Dec. 28, 2020.

But things were calmer in early trading on Friday with bitcoin up 1.73% trading around $29,400.