CURRENCIES: Dollar-yen Jumps To 8-week High As North Korea Fears Fade

Greenback rises to 12-day high against Canadian dollar after BOC remarks

The U.S. dollar rallied against the Japanese yen and the Canadian dollar on Monday, drawing on the abating concerns over North Korea as traders focused on the upcoming meeting of the Federal Reserve, as well as comments that the Bank of Canada will be closely watching its economy and strong currency following an interest-rate increase earlier this month.

The ICE U.S. Dollar Index , which measures the greenback against six of its rivals, rose 0.2% to 92.051, registering its first day-on-day gain in three days.

The dollar rose the most against the yen , fetching Yen111.51, 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.

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 Monday.

Over the weekend, U.S. Secretary of State Rex Tillerson said the U.S. is seeking "a peaceful solution" to the standoff with North Korea, but said a military option may be 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 clash. 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 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 to 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 this 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 isn't 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 $1.1951 on Monday, slightly up from $1.1947 on Friday. The New Zealand dollar weakened against the buck, buying $0.7257 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 slipped back below the $1.35-mark that it had broken last week. Sterling bought $1.3487, 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 spoke in Washington, D.C (http://www.bankofengland.co.uk/publications/Pages/speeches/2017/996.aspx). on Monday, saying that the U.K. will likely grow slower than other G-7 nations until mid-2018, while it grapples with the aftermath of Brexit.

Meanwhile, in Canada, Bank of Canada Deputy Gov. Timothy Lane addressed the topic of Canadian international trade, pointing to the rise in protectionist sentiment as something that could hurt the Canadian economy.

Prior to the speech, analysts suggested that a warning about the Canadian dollar's strength could be construed as dovish, whereas comments on a less currency-sensitive Canadian export economy would have given its currency room to rally. The Loonie, as Canada's currency is also called, appreciated against the dollar to reach its highest point since May 2015 earlier this month after the BOC raised its benchmark interest rate. The central bank will keep a close eye on how the Loonie will fare in the new higher-rates environment, Lane said, adding that economic growth was also under scrutiny.

The buck soared against the Canadian dollar (http://www.marketwatch.com/story/dollar-jumps-against-canadian-dollar-following-boc-deputy-remarks-2017-09-18) following the remarks, trading up to a 12-day high of C$1.2337 before retreating to C$1.2299 versus C$1.2195 late Friday.

(END) Dow Jones Newswires

September 18, 2017 16:42 ET (20:42 GMT)