Gertrude Chavez-Dreyfus
NEW YORK (Reuters) – The safe-haven Swiss franc and Japanese yen fell on Friday after Tehran signaled it had no plans to retaliate against Israel, which overnight launched what was described as a limited-scale attack on Iran .
Both currencies jumped against their peers following news of Israel’s move, but their gains slowed.
In afternoon trading, the dollar fell 0.2% against the Swiss franc to 0.91 francs. The price fell overnight to 0.9011 francs, about a two-week low, following news of Israel’s move.
Against the yen, the dollar was last slightly lower at 154.57 yen. After the news from Israel, the dollar fell to 153.59 yen.
Iranian media and officials described a small number of explosions they said occurred after air defenses shot down three drones over the city of Isfahan in central Iran. A senior Iranian official told Reuters there were no plans to retaliate against Israel for the incident.
“The market initially reacted poorly because of the premise of Israel’s response,” said Eugene Epstein, head of North American structuring at Moneycorp in New Jersey.
“The question is, will this conflict drag on? At the moment, Iran’s response to Israel is interpreted as de-escalation. That’s why we’re seeing a turnaround in almost everything.”
People familiar with the matter told Reuters that Israel attacked Iran days after Iran launched an unprecedented attack on Israel in retaliation for an alleged Israeli strike on its consulate in Syria.
Markets initially reacted sharply to news of Israel’s latest initiative, which triggered a sell-off in risk assets, sent oil and gold prices surging, and sparked a rally in U.S. Treasuries and safe-haven currencies.
The index, which tracks the currency against six major peers, also rose but gave up gains to remain little changed on the day at 106.17.
Currencies fluctuated throughout the European and North American sessions, with the euro initially falling but holding steady at $1.0648 in the afternoon. Sterling fell 0.5% to $1.2370.
The main theme of the last few weeks has been the rising dollar on the back of a strong US economy. The euro has fallen 1.3% this month and sterling has fallen 2%.
Hot data, especially last week’s data showing inflation rose to 3.5% in March, have traders quickly trimming their bets on the Federal Reserve cutting interest rates this year to less than the rate cut that is likely , will begin in September. That sent U.S. bond yields soaring, rising to their highest levels since November earlier this week.
“Investors remain largely focused on the Fed rather than geopolitics,” said Boris Kovacevic, global market strategist at Convera in Vienna, Austria. “The broader and bigger the picture, the higher the stakes in the U.S. for longer-term themes.”
Asian currencies have come under particular pressure, with financial leaders from the United States, Japan and South Korea this week issuing a rare trilateral warning over the two Asian countries’ exchange rates falling, raising the prospect of potential joint intervention.
Bank of Japan Governor Kazuo Ueda said on Thursday the central bank could raise interest rates again if a weaker yen significantly boosts inflation, stressing that currency moves could influence the timing of its next policy change.
The Bank of Japan will hold a monetary policy meeting next week. Data on Friday showed Japan’s core inflation slowed to 2.6% year-on-year in March from 2.8% but remained above the central bank’s 2% target.
Japanese Finance Minister Shunichi Suzuki on Friday again warned speculators about the yen depreciating too much, saying he would take appropriate action against excessive movements in the foreign exchange market.
In cryptocurrencies, Bitcoin rose 1.1% to $64,287 ahead of a widely expected halving either later on Friday or over the weekend. Halving refers to a technical adjustment built into the code of a digital currency that reduces the rate at which new coins are created.