Dollar Dives as Investors Take Protection in Yen, Swiss Franc

Investors took shelter in the Yen despite soft domestic data, a decline in benchmark Japanese bond yields and dovish remarks from the Bank of Japan. Money also flowed into the Swiss Franc which suggests investors were taking some insurance against extended volatility in the stock market.
James Hyerczyk
US Dollar
US Dollar

The U.S. Dollar finished lower against a basket of major currencies on Friday with most of the selling pressure fueled by a steep rise in the Japanese Yen. The Yen was supported by safe-haven buying in reaction to heightened volatility in U.S. equity markets.

Investors took shelter in the Yen despite soft domestic data, a decline in benchmark Japanese bond yields and dovish remarks from the Bank of Japan. Money also flowed into the Swiss Franc which suggests investors were taking some insurance against extended volatility in the stock market.

On Friday, the March U.S. Dollar Index futures contract settled at 95.965, down 0.036 or -0.04%. The USD/JPY closed the session at 110.294, down 0.698 or -0.63%.

Treasury Markets

U.S. Treasury markets rose on Friday after early session weakness. Yields fell once again as investors took protection against concerns over excessive stock market volatility.

In addition to the stock market’s wild swings, investors continued to seek shelter from a number of issues causing uncertainty in the financial markets. These included a lack of confidence in the U.S. Federal Reserve, the ongoing partial government shutdown in Washington and worries over a possible U.S. recession. Investors also aren’t sure whether U.S. and China negotiators will be able to hammer out a new trade agreement by the self-imposed March 1 deadline.

U.S. Economic Reports

On Friday, investors continued to react to the miss in Conference Board Consumer Confidence, reported on Thursday. In a sign some consumers are worried about the economy, the Conference Board’s consumer confidence index declined modestly in December, hitting its lowest level since July. CB Consumer Confidence came in at 128.1, missing the 133.7 forecast. The previous month was revised higher to 136.4.

Chicago PMI was reported at 65.4, down from 66.4, but higher than the 61.4 forecast.

Contracts to buy previously owned homes fell unexpectedly in November, the National Association of Realtors said on Friday, the latest sign of weakness in the U.S. housing market.

The NAR’s pending home sales index decreased 0.7 percent from the prior month to 101.4. October’s index was revised.

Additionally, compared to one year ago, pending sales were down 7.7 percent in November, the eleventh straight year-over-year drop.

This year, the U.S. housing market has been constrained by higher mortgage rates as well as land and labor shortages, which have led to tight inventory. Furthermore, although house price inflation has slowed significantly, it continues to outpace wage growth, which tends to prevent first-time buyers from becoming homeowners.

Lawrence Yun, the NAR’s chief economist, said in a statement on Friday that the pending home sales data was not yet reflecting recent favorable mortgage rate conditions.

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