The Japanese yen settled for its biggest gain against the dollar in more than two years on Tuesday as concerns over the U.S. House of Representatives Speaker Nancy Pelosi’s trip to Taiwan drove investors to safe haven currencies.
The currency has risen nearly 4.5% over the past five trading sessions, hitting a high of nearly 130.4 yen to the dollar in London.
Concerns about the impact of Pelosi’s impending visit to Taiwan weighed on stocks and sent investors fleeing into US Treasuries.
The yield on the benchmark 10-year Treasury fell to 2.516%, its lowest since April, further narrowing the gap between 10-year US debt and the equivalent Japanese bond to 236 basis points (bps) , the lowest since early April.
The US economy shrank for a second straight quarter, data released last week showed, intensifying the ongoing debate over whether the country is, or soon will be, in recession, with traders looking forward to the next US employment data on Friday.
“US data releases and the reaction to US yields through the end of this week will be critical as the JPY’s momentum has created a huge head of steam here,” said John Hardy, head of ‘Saxo Bank forex strategy.
The Australian dollar fell almost 1.5% on Tuesday after the Reserve Bank of Australia raised rates by 50bps to 1.85%, in line with expectations.
The bank said that while more intense tightening was expected, it was not on a pre-set path, which some investors interpreted as a sign that future policy tightening might not be as aggressive.
China’s offshore yuan touched 6.7957 per dollar, its weakest level since mid-May. Some analysts attributed that in part to tensions surrounding Pelosi’s visit, as well as poor economic data from China over the weekend.
The dollar index, which measures the greenback against six peers, rose 0.3% to 105.65.
Reuters, with additional editing by Alfie Habershon
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Alfie is a reporter at Asia Financial. He previously lived in Mumbai reporting on India’s economy and health for the data journalism initiative IndiaSpend, as well as working for London-based Tortoise Media.