By Olga Cotaga
LONDON (Reuters) – Safe haven currencies such as the Japanese yen rose to their highest level in months on Friday after U.S. airstrikes in Iraq killed a senior Iranian military official.
US Treasuries, oil prices and gold recovered after an Iraqi militia spokesman told Reuters that Iranian Maj. Gen. Qassem Soleimani and Iraqi militia commander Abu Mahdi al-Muhandis were killed in the attack.
The Pentagon confirmed the strike and said Soleimani is actively developing plans to attack the Americans in Iraq and the Middle East.
The Japanese yen hit a two-month high of 107.92 against the US dollar, the last day of which was a rise of 0.5%.
Given the status of Japan as the largest creditor nation in the world, the yen is often viewed as a risk haven. A vacation in Tokyo also ensured thin conditions that exceeded the move.
Graphic: The Japanese yen rises to a 2-month high against the US dollar. png
The rise in the yen triggered a sell-off in the South African rand, which lost almost 2% of its value against the US dollar, and an increase in the Hong Kong dollar, which rose to 2: 1/2. Year high.
When investors become risk averse due to a risk event in the markets, they tend to shift their current positions. Until recently, traders were long South African rand and short traders of the Hong Kong dollar. "Whatever the positioning out there is usually liquidated," said Neil Jones, director of sales for European hedge funds at Mizuho.
"I expect the short-term risk to remain intact," said Jones.
The Swiss franc, another currency that was perceived as safe, rose to a 4-month high of 1.0824 against the euro. The US dollar reached a one-week high against the euro.
Ten-year US government bond yields fell to their lowest level in three weeks, at 1.795%, from 1.946% the previous day. Bond prices rise with falling yields.
CIBC's currency chief Jeremy Stretch said the decline in US yields shows a reversal of Thursday's optimism.
Market participants are now calculating the risk of retaliation on the Iranian side. "We are still waiting to see if there will be (the) dynamic response hinting at the headlines."
A stronger dollar dropped the pound 0.6% to $ 1.3058 and 0.2% against the euro at 85.19 pence.
Traders will watch the preliminary German inflation figures for December from 1300 GMT. Economists surveyed by Reuters assume that the annual inflation rate rose from 1.1% in the previous month to 1.4%.
Preliminary data in France showed that inflation exceeded market expectations and rose from 1.2% to 1.6%. Surveys had forecast an increase to 1.4%.
An index of US manufacturing activity is also expected around 1500 GMT, but markets will be more interested in reviewing the minutes of the last Federal Reserve meeting in December.
Although the Fed has left interest rates unchanged, analysts will look for clues as to how the bank intends to resolve the liquidity squeeze in the "repo" or repurchase contract market, said Stretch from CIBC.
Several Fed officials will speak on Friday, including Governor Lael Brainard and bank heads in San Francisco, Chicago, Richmond and Dallas.
Analysts expect that they will remain optimistic about the economic outlook and keep the interest rate outlook stable.
(Reporting by Olga Cotaga; editing by Jan Harvey and Giles Elgood)