FOREX-Negative bund yields pressure euro, Brexit vote looms, eyes on Fed

June 15, 2016
By


* Euro hit after 10-yr German yield turns negative for first
time

* Fed meeting eyed for cues on the c.bank’s rate hike stance

* Dollar/yen edges up as recently battered Tokyo stocks
rebound

(Adds details, quotes)

By Shinichi Saoshiro

TOKYO, June 15 The euro nursed losses against
the dollar on Wednesday as the benchmark German government bond
yield turned negative for the first time due to worries that
Britain might vote next week to leave the European Union, while
investors stayed cautions ahead of a Federal Reserve’s policy
decision later in the global day.

The euro was flat at $1.1201 after sliding 0.8
percent overnight to an 11-day low of $1.1189, in a slide that
took it from a one-month high of $1.1416 scaled last week.

Germany’s 10-year bund yield turned negative
for the first time on Tuesday after a series of opinion polls
showed a big lead for the “leave” camp in Britain’s EU
referendum.

“The euro falling against the dollar shows the impact
negative German bond yields are having. The markets have to
brace for the European Union falling into dysfunction if Britain
leaves,” said Junichi Ishikawa, forex analyst at IG Securities
in Tokyo.

The U.S. Treasury 10-year note yield dropped to
a four-month trough on Tuesday in light of the ongoing global
flight-to-quality.

The euro also fell against the safe-have yen, which has been
bolstered recently on mounting Brexit fears. The common currency
was steady at 118.90 yen after falling to 118.51
overnight, its lowest since January 2013.

The yen gave back a bit of ground against the dollar as a
bounce by recently battered Tokyo stocks slightly improved
investor risk appetite for the time being.

The dollar edged up 0.2 percent to 106.260 yen,
having bounced from an overnight low of 105.630 thanks to
Tuesday’s upbeat May U.S. retail sales data. A drop below 105.55
would take the greenback to its lowest level since October 2014.

In addition to safe-haven bids for the yen, the dollar has
been on the back foot against its Japanese counterpart as
prospects of the Fed raising rates this month have been dashed
by soft U.S. data, notably the much weaker-than-expected May
non-farm payrolls report.

The Fed concludes its two-day Federal Open Market Committee
(FOMC) meeting later on Wednesday.

“The likelihood of the Fed hiking interest rates will be
very low while Brexit worries dominate action in the financial
markets,” said Masafumi Yamamoto, chief currency strategist at
Mizuho Securities in Tokyo.

“That said, the FOMC meeting will still garner attention as
it will give the market a chance to gauge the Fed’s stance on
rate hikes at the July meeting and beyond.”

Sterling steadied at $1.4120 after recovering
slightly from a two-month low of $1.4091 plumbed Tuesday on
Brexit fears.

The Australian dollar traded at $0.7355, within
reach of a one-month high of $0.7505 touched last week.

That high was reached as the Reserve Bank of Australia (RBA)
appeared less dovish than some had expected last week, when it
left interest rates unchanged and did not hint at an explict
easing bias. Lower commodity prices, however, have since capped
the Aussie.

(Editing by Simon Cameron-Moore)

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