The Japanese yen continued to attract traders on Tuesday as a range of global economic and political events came together.
The currency, which is seen as a safe haven because it has high net foreign assets, rose yesterday in the aftermath of renewed uncertainty about whether or not the US government would be able to negotiate a trade deal with China, which claimed it had never received the calls from US negotiators.
However, more events conspired on Monday and into Tuesday to force the yen up even further.
In the US, government bond yields went up higher than decade-long yields – a sign which is often interpreted by the foreign exchange markets as that of an upcoming recession, as previous economic contractions have often been preceded by this curve behaviour.
This inversion of the yield curve was first spotted a few weeks ago, but its continuation clearly unsettled traders.
In its pair with the US dollar, the Japanese yen held firm at 105.765.
This represented a cementing of a strong position rather than a fresh rise, but it was near to the over half a year high point it saw earlier in the week.
Despite the problems appearing to affect the US economy, the US dollar index actually managed to rise a tiny bit. The index, which monitors how the greenback is performing compared to several other major currencies from across the globe, went up to 98.042 at one stage.
This was likely due to other currencies experiencing even worse problems. The Australian dollar, for example, went down in value to its lowest point in ten years. It saw a position of $0.6677 in its pair with the US dollar.
The British pound did manage to make some gains over the course of Tuesday. Opposition leader Jeremy Corbyn said that he would be making moves to ensure that Britain did not crash out of the EU without a deal in a couple of months’ time.
However, it may now have to navigate a new political crisis after Prime Minister Boris Johnson said that he would close the current parliamentary session early and set up a new one before the proposed Brexit date of October 31st.
This would mean that a new legislative programme would be announced and could well limit the amount of time other members of parliament have to prevent a no-deal Brexit.
The euro did not see much of a change in its pair with the US dollar. This perhaps helped the dollar index to stay relatively high, as it is weighted in favour of the euro. It was seen at $1.1091 at one stage.
There was continuing uncertainty over the position of the Italian political situation, however. The ruling coalition in Italy appeared to continue to fragment, although the 5-Star Movement party now appears to be aligning with the Democratic Party to form a new coalition.
However, analysts appeared to put this down to typical, long-running Italian instability, and it did not appear to have any discernible effect on the forex markets.