CURRENCIES: Dollar Jumps To 8-week High Week Against Yen As North Korea Fears Fade

By Sara Sjolin, MarketWatch , Anneken Tappe Features Dow Jones Newswires

Pound gives back some of last week's Bank of England-spurred rebound

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The U.S. dollar advanced on Monday, rallying against the Japanese yen in particular as concerns over North Korea abated and traders looked ahead to the meeting this week of Federal Reserve policy makers.

The dollar rose the most against the yen , fetching Yen111.47, compared with Yen110.83 late Friday in New York. That was the highest yen level for the greenback since late July, according to FactSet data.

Meanwhile, the ICE Dollar Index , that measures the greenback against six of its rivals, rose 0.1% to 92.926, on track to break a two-session losing run.

The move out of the Japanese currency--considered a haven asset--came as tensions between the U.S. and North Korea were seen as easing over the weekend with no new aggressions from the isolated regime.

Still, the tensions with Pyongyang could easily make headlines again as the week goes on, as the United Nations General Assembly is set to meet today.

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Over the weekend, U.S. Secretary of State Rex Tillerson said the U.S. is seeking "a peaceful solution" to the conflict with North Korea as a military option is the only one left if diplomatic efforts fail. Tillerson made the remarks on CBS's "Face the Nation" on Sunday (https://www.cbsnews.com/news/rex-tillerson-north-korea-military-option-will-be-only-one-left-if-diplomacy-fails/).

Pyongyang on Friday fired a ballistic missile (http://www.marketwatch.com/story/un-security-council-to-hold-emergency-meeting-after-latest-north-korean-missile-test-2017-09-14) over Japanese territory for the second time in a month, rekindling worries of a military standoff. However, U.S. stocks ended at record highs on Friday (http://www.marketwatch.com/story/dow-futures-steady-paring-losses-that-came-after-latest-north-korean-missile-2017-09-15), while gold ended lower and continued to decline on Monday.

"In our view, this suggests that as long as the situation does not escalate into military conflict, market participants may continue to place less and less emphasis on North Korean developments," said Charalambos Pissouros, senior analyst at IronFX, in a note.

Pissouros also said the yen was pressured by media reports over the weekend that suggested Japan's Prime Minister Shinzo Abe is considering calling a snap election as early as next month in a bid to gain a bigger majority for his party.

"If early elections are confirmed in the next days, the increased domestic political uncertainty could be another factor weighing on the yen, besides the latest risk-on environment," Pissouros said.

Later this week, market participants will focus their attention on the Federal Reserve's Open Market Committee meeting and rate decision on Wednesday. Chairwoman Janet Yellen & Co. are widely expected to keep interest rates on hold, but to begin shrinking the Fed's balance sheet. Also in focus this week will be political developments in Germany and New Zealand, both of which are going to the polls for their general elections on the coming weekend.

See:Fed to take historic leap into the unknown (http://www.marketwatch.com/story/fed-to-take-historic-leap-into-the-unknown-2017-09-14)

Also read:Why the bond market isnt freaking out about the Fed's shift to quantitative tightening (http://www.marketwatch.com/story/why-the-bond-market-isnt-freaking-out-from-the-feds-shift-to-quantitative-tightening-2017-09-14)

The euro traded at $1.1952 on Monday, little changed from $1.1947 on Friday. The New Zealand dollar weakened against the buck, buying $0.7285 versus $0.7292 late Friday in New York.

Read:New Zealand election likely to weaken its dollar (http://www.marketwatch.com/story/new-zealand-election-likely-to-weaken-its-dollar-2017-09-01)

In other currencies, the British pound eased back after its rally last week. Sterling bought $1.3562, down from $1.3592 late Friday in New York. The currency hit its highest level since the U.K.'s Brexit vote in June 2016 during the Friday session, after Bank of England super-dove Gertjan Vlieghe said interest rates may need to go up in "coming months." (http://www.marketwatch.com/story/ballistic-pound-shoots-up-to-highest-level-since-brexit-vote-2017-09-15)

That fueled expectations the BOE will raise interest rates before the end of the year, instead of sometime in 2018 as previously expected.

"However, with markets pricing in a 80% probability of a hike in November, it may be time to discuss the evolution of the U.K. economic growth potential in light of Brexit again. Increasing tensions within the Conservative Party have become visible over the weekend when Foreign Secretary [Boris] Johnson laid out his Brexit vision which seems to differ from the position of Prime Minister Theresa May," analysts at Morgan Stanley said in a note.

BOE Gov. Mark Carney will speak later on Monday at the International Monetary Fund in Washington.

Bank of Canada Deputy Gov. Timothy Lane will also speak later on Monday, addressing the topic of Canadian international trade and how it changes over time.

"That topic would allow the possibility of warning the market about taking the Canadian dollar too high too fast," FX strategists Greg Anderson and Stephen Gallo of BMO wrote in a note on Monday. On the other hand, "if Lane acknowledges that Canada's exports have become less exchange-rate sensitive, then the talk could wave on further Canadian dollar upside like the BOC's statement did two weeks ago," they continued.

The Canadian dollar was little changed against the dollar, at C$1.2197 per buck versus C$1.2195 late Friday.

(END) Dow Jones Newswires

September 18, 2017 10:08 ET (14:08 GMT)