The dollar traded on Tuesday at its highest level against the yen in nearly six weeks as a sharp drop in stock-market volatility blunted demand for safety plays like the Japanese currency.
The greenback has advanced against the yen over the past two weeks as geopolitical fears tied to an election in France have faded, while tensions between the U.S. and North Korea have faded somewhat.
Emmanuel Macron’s first-place finish in the April 23 French vote was seen as a blow to the momentum of nationalist politicians like far-right candidate Marine Le Pen, who has called for France to exit from the European Union. Le Pen will face off against Macron in the final round of the country’s presidential elections this weekend.
Meanwhile, President Donald Trump said in a Monday interview that he would “absolutely” be willing to meet with North Korean leader Kim Jong Un, a course of action that has long been encouraged by China, the so-called Hermit Kingdom’s largest benefactor.
The dollar USDJPY, +0.27% advanced to ¥112.31 in recent trade, its highest level since March 21. By comparison, it traded at ¥111.84 late Monday in New York. The CBOE Volatility Index, commonly referred to as the VIX, slumped to a 10-year low on Monday, a sign that investors are anticipating a placid market in May.
“There was no news to explain the move, save for the fact that the pair continues to enjoy risk-on flows in the wake of Macron’s 1st round election win more than a week ago,” said Boris Schlossberg, managing partner at BK Asset Management, in a research note published Tuesday.
But upside for the dollar will likely be limited in the coming days as investors await an announcement from the Federal Reserve, due Wednesday, as well as a reading on employment growth in the U.S., due Friday.
“Markets are mindful of the Fed decision tomorrow and they’re waiting to see if the payrolls from last month was an aberration,” said Jeremy Stretch, head of currency strategy at CIBC. The U.S. economy added just 98,000 jobs in March, far short of Wall Street’s expectations.
Few expect the Fed to raise interest rates at this week’s meeting, but the perceived probability of a rate hike at its subsequent meeting, set to begin June 13, has climbed above 70%, according to data provided by the CME Group.
Euro rises on Greek debt deal
The euro strengthened on Tuesday as news that Greece had reached an agreement to unlock the next tranche of bailout money pushed the shared currency higher.
One euro EURUSD, +0.0183% bought $1.0907 in recent trade, compared with $1.0900 late Monday in New York, just below a more than five-month high.
The euro has marched higher in recent weeks as polls suggest Macron will handily defeat Le Pen in the second round of the French presidential election. Voters will head to the polls on Sunday.
Early in the morning, Greek Finance Minister Euclid Tsakalotos said the debt-burdened economy hadagreed on a round of austerity measures and economic overhauls to keep the Greece’s €86 billion bailout program going. The deal will release the next disbursement of aid, needed to make debt repayments in July and avoid a default this summer.
In other currencies, the dollar traded mixed, with the ICE Dollar DXY, +0.03% mostly flat at 99.13.
The pound GBPUSD, +0.3182% rallied to $1.2913 after the U.K.’s manufacturing purchasing managers index came in at a three-year high in April. Sterling on Monday fetched $1.2885.