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FOREX-Dollar gains after N.Korea test, eyes on Fed speakers

Published 09/09/2016, 09:16 pm
Updated 09/09/2016, 09:20 pm
© Reuters.  FOREX-Dollar gains after N.Korea test, eyes on Fed speakers
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* Speculation Fed officials could sound hawkish before blackout

* Dollar/yen edges lower, down 1.8 pct for the week

* North Korea prods investors towards yen, euro, dollar (Adds more comment, updates prices)

By Patrick Graham

LONDON, Sept 9 (Reuters) - North Korea's latest nuclear test pulled cash into the perceived safety of the U.S. dollar and Japanese yen on Friday, at the end of a week that provided little clear direction for currency investors returning from U.S. and European summer breaks.

The dollar more broadly was down 1 percent or more for the week against most major currencies but it gained ground for a second day against the Korean won and the New Zealand and Australian dollars as news of the test filtered through.

The announcement late in the European day on Thursday of a speech by U.S. Federal Reserve Governor Lael Brainard also had dealers speculating that she might draw back on her long-held scepticism about a near-term rise in interest rates.

That helped eat into the euro's gains against the dollar after a European Central Bank meeting which quelled expectations of swift moves toward a further easing of policy that would flood the market with yet more euros next year.

"Really the euro should have gained yesterday but this announcement of a Brainard speech right at the last moment before the blackout period for the Fed has made people nervous," said Richard Benson, co-head of portfolio management at currency fund Millennium Global in London.

The euro and the yen's strength have been the nearest thing currency investors have had to a theme over the past few weeks.

Both have looked resilient in the face of expectations of more easing by the Bank of Japan and the ECB, as that looks substantially like a reflection of scepticism that either bank has enough fire power to weaken their currency durably.

"I would say there's a lot of uncertainty on the yen, but on the euro yes there is doubt about the ECB's ability to do enough," Benson said.

The dollar fell 0.4 percent against the yen in early trade in Europe on Friday before recovering to trade 0.2 percent higher on the day. It was on track for a weekly loss of 1.3 percent. JPY=

The euro was also 0.1 percent higher at $1.1270, though that left it well short of Thursday's two-week highs above $1.13.

North Korea announced on Friday it had conducted its fifth nuclear test, hours after seismic monitors detected a blast near the secretive country's nuclear test site. disappointing U.S. non-farm payrolls report a week ago and a weaker-than-expected service sector survey on Tuesday led some investors to trim bets that the Fed would be raising rates as early as this month, despite a chorus of Fed officials signalling that the time to hike was approaching.

Several Fed officials are due to speak ahead of Brainard's speech on Monday.

Morgan Stanley (NYSE:MS)'s head of European FX research, Hans Redeker, recommended selling the yen against the euro in a report on Thursday.

"Monday may be a very important day. If the Fed wants to prepare the market (for a hike) then a generally dovish member of the FOMC like Brainard making hawkish statements would be an obvious way," he said on Friday.

"That could give you a dollar rebound which would be a significant dollar yen rebound. By our measures the yen bullish position is really the biggest at the moment, it has looked increasingly exposed." (Editing by Jon Boyle)

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