CURRENCIES: Dollar Weakens As U.S.-North Korea Discord Prompts Run To Safety
North Korea's Kim Jong Un made explicit threat to strike a U.S. military base in Guam
The dollar weakened broadly against its currency rivals on Wednesday, with haven assets including Switzerland's currency bid higher following intensifying rhetoric between North Korea and the U.S.
Flight-to-safety moves pushed up the value of classic assets perceived as safe, including the Swiss franc, the Japanese yen and gold prices after North Korean leader Kim Jong Un made an explicit threat to strike a U.S. military base in Guam (http://www.marketwatch.com/story/north-korea-threatens-missile-strike-on-us-base-on-guam-2017-08-08).
The North Korean leader's comments, reported in state media, came hours after U.S. President Donald Trump warned Pyongyang not to "make any more threats" to the U.S., saying it would face a "fire and fury" response (http://www.marketwatch.com/story/trump-today-president-says-north-korea-faces-fire-and-fury-if-it-doesnt-halt-threats-2017-08-08) "like the world has never seen." Trump's remarks followed a Washington Post report (https://www.washingtonpost.com/world/national-security/north-korea-now-making-missile-ready-nuclear-weapons-us-analysts-say/2017/08/08/e14b882a-7b6b-11e7-9d08-b79f191668ed_story.html?utm_term=.0938becb046e) that North Korea has built a miniaturized nuclear warhead.
The Swiss franc bought $1.0370, representing a 1.01% rise from $1.0266 late Tuesday in New York, but down from $1.0382 earlier on Wednesday. Meanwhile, the dollar fetched Yen109.93, up from Yen109.69 earlier in the day, but down compared to Yen110.31 late on Tuesday.
"The unpredictable nature of North Korea means it is hard to gauge exactly how likely an attack is, yet given the military power of both nations, there is no surprise we are seeing markets shift out of risk assets and into havens such as the yen and gold," said IG market analyst Joshua Mahony, in a note.
The South Korean won continued to slip against the greenback, dropping 0.9% with one dollar buying 1,139.90 won on Wednesday morning. Meanwhile, the country's Kospi Composite Index fell 1.1% to 2,368.39.
Gold futures prices (http://www.marketwatch.com/story/gold-gains-about-1-as-us-north-korea-tensions-grow-2017-08-09) settled (http://www.marketwatch.com/story/gold-gains-about-1-as-us-north-korea-tensions-grow-2017-08-09)1.4% higher at $1,279.30 an ounce, representing its best daily gain in about three months. Meanwhile, European stocks continued to slide, with French and German benchmarks losing 1.4% and 1.12% respectively. Korea's Kospi stock benchmark lost 1.1% while U.S. stock futures were losing ground ahead of Wednesday's open (http://www.marketwatch.com/story/us-stock-futures-pull-back-on-rising-north-korea-tensions-2017-08-09).
"With European, U.S. and Asian markets all suffering heavily in anticipation of a potential conflict in Asia, it is worthwhile noting that we have heard similar posturing between Trump and Kim Jong Un before," said Mahony.
"There is a big difference between words and actions. Kim Jong Un knows that by starting a conflict he is by and large marking the beginning of the end for his regime. Meanwhile, Trump knows that a conflict in North Korea could risk a huge amount of casualties and a huge humanitarian crisis on China's doorstep."
On the economic data front, preliminary U.S. labor productivity for the second quarter beat expectations and rose 0.9%, compared with the consensus expectation of a 0.6% gain. Unit labor costs for the same period increased by 0.6%, compared with the expected 0.85%.
The ICE dollar index stood at 93.5510, 0.1%, lower, after switching in and out of positive territory throughout much of the session.
Despite the market's focus on North Korea, Friday's inflation numbers remain a focal point (http://www.marketwatch.com/Economy-Politics/Calendars/Economic) for the dollar, analysts led by Hans Redeker wrote in a Morgan Stanley research note on Wednesday.
Meanwhile, St. Louis Fed President James Bullard reiterated dovish comments he made earlier in the week (http://www.marketwatch.com/story/feds-bullard-says-short-term-interest-rates-are-fine-where-they-are-now-2017-08-07) this afternoon, saying that raising interest rates too quickly could be risky.
The British pound bought $1.3003, just above $1.2993 late Tuesday in New York. The euro fetched $1.1755, compared with $1.1752 late Wednesday in New York.
(END) Dow Jones Newswires
August 09, 2017 15:13 ET (19:13 GMT)