By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) – Safe-haven Swiss francs and Japanese yen fell on Friday after Tehran signaled it has no plans to retaliate against Israel, which launched an overnight attack on Iran launched on a limited scale.
Both currencies have risen against their peers on news of Israel’s action, but their gains have slowed.
In afternoon trading, the dollar fell 0.2% against the Swiss franc to 0.91 francs. The price fell overnight to 0.9011 francs, a roughly two-week low, after news of Israel’s move.
Against the yen, the dollar last fell slightly at 154.57 yen. The dollar fell to a low of 153.59 yen after the news from Israel.
Iranian media and officials described a small number of explosions, which they said resulted from air defenses hitting three drones over the city of Isfahan in central Iran. A senior Iranian official told Reuters there were no plans to respond against Israel over the incident.
“The market reacted poorly initially because of the premise of an Israeli response,” said Eugene Epstein, head of structuring for North America at Moneycorp in New Jersey.
“The question is: will this conflict continue? At this point, Iran’s response to Israel is tentatively interpreted as a de-escalation. That’s why we’ve seen a reversal of pretty much everything.”
People familiar with the matter told Reuters that Israel attacked Iran days after Iran launched an unprecedented attack on Israel in response to a suspected Israeli attack on its consulate in Syria.
Markets initially reacted sharply to news of the latest Israeli initiative, which led to a sell-off in risk assets, boosted oil and gold prices and led to a rally in US government bonds and safe-haven currencies.
The , which tracks the currency against six major peers, also rose but gave up its gains and remained little changed at 106.17.
Currencies bounced around during the European and North American sessions, with the euro initially falling but remaining flat at $1.0648 in late afternoon trading. Sterling fell 0.5% to $1.2370.
The broad theme of recent weeks has been a rising dollar due to a strong US economy. The euro is down 1.3% so far this month, while sterling is down 2%.
Hot data, especially last week’s figures showing inflation rose to 3.5% in March, has led traders to quickly scale back their bets on Federal Reserve rate cuts this year to less than rate cuts, most likely in September to start. That has caused U.S. bond yields to rise, pushing them to their highest level since November earlier this week.
“Investors are still primarily focused on the Fed, rather than geopolitics,” said Boris Kovacevic, global market strategist at Convera in Vienna, Austria. “The broader, bigger picture is the longer-term higher theme in U.S. interest rates.”
Asian currencies have come under particular pressure, and financial leaders in the United States, Japan and South Korea this week issued a rare trilateral warning about the two Asian countries’ falling exchange rates, raising the prospect of a possible joint intervention increases.
Bank of Japan Governor Kazuo Ueda said on Thursday the central bank could raise interest rates again if the yen’s decline significantly boosts inflation, highlighting the impact currency moves could have on the timing of the next policy change.
The BOJ will hold its monetary policy meeting next week. Data on Friday showed Japan’s core inflation slowed from 2.8% to 2.6% on an annual basis in March, but remained above the central bank’s 2% target.
Japanese Finance Minister Shunichi Suzuki on Friday issued new warnings to speculators about pushing the yen down too much, noting he would take appropriate action against excessive moves in the currency market.
In cryptocurrencies, bitcoin rose 1.1% to $64,287 ahead of the widely expected halving later on Friday or over the weekend. Halving refers to a technical adjustment built into the digital currency’s code that reduces the rate at which new coins are created.
