Dollar up as equities surge, yields rise on upbeat data

20/10/2014 08:52 AST

TOKYO: The dollar gained on Monday after upbeat data restored some calm to the financial markets, prompting equities to rally back from deep losses and triggering a rise in Treasury yields.

The greenback got a further lift against the yen after reports that Japan's $1.2 trillion Government Pension Investment Fund (GPIF) could boost foreign asset holdings, seen spurring demand for foreign currencies.

The dollar was up 0.4 percent at 107.345 yen, pulling further away from a five-week low of 105.195 hit the previous week. The US currency hit a six-year high at the start of this month, poking above 110 yen - a level at which nearly half of Japanese firms think the government should start defending it, according to a Reuters poll.

"The dollar could extend its gains to the mid-107 yen level if equity market sentiment in Asia and Europe improve," said Masafumi Yamamoto, a market strategist for Praevidentia Strategy in Tokyo.

"The GPIF news is also rare as it touches on figures related to foreign asset allocations and could be leading to further selling of the yen."

On Friday, data showed US consumer sentiment come in stronger than expected, restoring some faith in the US economy and calming nerves after a week that saw Wall Street buffeted and Treasury yields fall sharply on global growth concerns.

Taking tips from Friday's rebound on Wall Street, Tokyo's Nikkei, which hit a five-month trough on Friday, surged 3.5 percent. In focus was whether the equity markets can retain their semblance of calm in the face of coming data.

"There are not a lot of immediate factors today for currencies, which will continue to watch changes in risk sentiment while awaiting data starting tomorrow such as those from China," said Shinichiro Kadota, chief Japan FX strategist at Barclays Bank in Tokyo Indicators including September industrial output, retail sales and third quarter GDP will be released in China on Tuesday.

Other data this week that could have a bearing on global risk sentiment includes US inflation on Wednesday and euro zone and German PMI indexes on Thursday.

The two-year US Treasury yield, often correlated to the dollar's performance, had risen to 0.378 percent from a 17-month trough of 0.244 percent reached last week. The euro was steady at $1.2764 after pulling away from a three-week peak of $1.2887 scaled last week.

The dollar index, which measures the greenback against a basket of six major currencies, rose 0.1 percent to 85.209 after dropping to a three-week trough of 84.472. Commodity currencies, sensitive to perceived shifts in global demand, also fared better as pessimism over the economy was tempered and risk sentiment improved.

The Australian dollar climbed 0.4 percent to $0.8777.

Its New Zealand counterpart rose 0.5 percent to $0.7950.

Sterling edged up 0.1 percent to $1.6111 after drawing comfort on Friday when Bank of England chief economist Andrew Haldane said markets might be right to bet that UK rates will be hiked some time in the middle of next year.

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