The safe-haven yen rose broadly on Tuesday, as investors considered a spectrum of risks including possible U.S. action in Syria and North Korea, and a resurgence in previously written-off contenders in France’s presidential race. The possibility of some kind of U.S. military action against North Korea in response to its weapons tests grew after U.S. missile strikes against Syria last week in retaliation for a chemical weapons attack on civilians. The Japanese currency rose as much as 0.4 percent to 110.455 yen against the dollar in morning trade in London, last trading at 110.62 yen.
“We did see the yen strengthen and that reflects overall market uneasiness given the escalation of geopolitical risks we have surrounding Syria and North Korea,” said Valentin Marinov, head of FX strategy at Credit Agricole in London. The yen touched a four-month high versus the euro as investors also weighed the possibility of a full-on four-way contest in the French presidential elections, which could pose greater uncertainty over the results. It rose as much as 0.4 percent to 116.880 yen per euro, its highest since Nov. 18.
“Part of the story has also to do with the selloff in euro-yen where we see further downside as risks ahead of the first round of the French presidential elections have grown of late… so all that (is) boosting demand for safe havens,” Marinov said.
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Opinion polls indicate far-right candidate Marine Le Pen and centrist Emmanuel Macron will come out ahead in the April 23 first round and make it to the May 7 run-off, with Macron winning. But leftist Jean-Luc Melenchon has seen his ratings surge and conservative Francois Fillon, damaged by a nepotism scandal, has also regained some lost ground.
Both Le Pen’s and Melenchon’s pledges to hold referendums on France’s membership of the European Union have sparked fears among investors of the potential for a wider breakup of the euro zone. The dollar index, which gauges the U.S. currency against a basket of six major peers, was lower 0.1 percent on the day at 100.85. “The dollar rally we’ve seen over the past week may be a bit overdone considering the risks we’re still facing,” said Thu Lan Nguyen, currency analyst at Commerzbank in Frankfurt.
China and South Korea agreed on Monday to impose tougher sanctions on North Korea if it carries out nuclear or long-range missile tests, a senior official in Seoul said, as a U.S. Navy strike group headed to the region in a show of force.
(Reporting by Ritvik Carvalho; additional reporting by Tokyo markets team, editing by Pritha Sarkar)