Sterling dips after Truss resigns, fragile yen weakens past 150 level

© Reuters. FILE PHOTO: A Japan Yen note in front of U.S. Dollar and British Pound Sterling notes are seen in this June 22, 2017 illustration photo. REUTERS/Thomas White/Illustration

By Rae Wee

SINGAPORE (Reuters) – edged lower on Friday as investors digested the news that British Prime Minister Liz Truss had quit after just six weeks in office, while the Japanese yen languished near a fresh 32-year low.

The pound dipped 0.21% to $1.1215 in early Asian trade, after a brief rally to a high of $1.1338 in the previous session after Truss announced her resignation.

“I think that was a knee-jerk reaction to at least a temporary easing of UK political uncertainty… I think markets for now are pretty happy about the news,” said Carol Kong, currency strategist at Commonwealth bank of Australia (CBA).

“But the news that we heard only removed some, but not all of the political uncertainty in the UK economy, and we’ll still hear more on the fiscal policy front at the end of this month.”

Truss was brought down by an economic programme that sent shockwaves through markets and shattered the country’s reputation for financial stability.

The Conservative Party, which holds a big majority in parliament and need not call a nationwide election for another two years, will now elect a new leader by Oct. 28 – Britain’s fifth prime minister in six years.

The euro fell 0.15% to $0.97725, after tracking the move in sterling to an overnight high of $0.98455.

Meanwhile, the yen last bought 150.20 per dollar, after hitting a fresh 32-year low of 150.29 overnight. It has lost nearly 1% this week, and is on track for a 10th-straight weekly loss.

The battered currency first weakened past the symbolic 150 level late Thursday afternoon in Tokyo, but strengthened sharply from an interim low of 150.09 per dollar to 149.63 within a minute.

Fresh threats of intervention made by Japanese policymakers have kept investors on high alert, although there has been no news of further action since the Ministry of Finance’s dollar-selling, yen-buying intervention last month.

“(They) can no longer just rely on individual-part intervention to keep the yen from depreciating. You either have yield curve control lifted, or concerted action,” said Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis.

Data on Friday showed that Japan’s core consumer inflation rate accelerated to a fresh eight-year high of 3.0% in September, testing the Bank of Japan’s resolve to maintain ultra-low interest rates.

Elsewhere, the greenback rose against a basket of currencies on the back of surging Treasury yields, with the up 0.03% to 112.97.

U.S. Treasury yields extended their climb overnight, with the two-year Treasury yield hitting a 15-year high of 4.623%, while the benchmark 10-year Treasury yield peaked at 4.243%, its highest level since June 2008.

Fed officials showed no signs of backing down from their hawkish rhetoric, with Federal Reserve Bank of Philadelphia President Patrick Harker saying overnight that the central bank is not done with raising its short-term rate target amid very high levels of inflation.

The risk-sensitive fell 0.18% to $0.6272, but was on track for its first weekly gain after a losing streak over the past five weeks.

The traded 0.22% lower at $0.56625, but was similarly on track for its first weekly gain, snapping nine straight weeks of losses.

“I think that was reflecting better risk sentiment in markets – we’ve seen quite strong corporate earnings,” said CBA’s Kong.

“But again, in this current market environment, the outlook for the global economy is still deteriorating.”