The euro fell against the rebounding US dollar on Friday and hit a 2-year low versus the Swiss franc, as investors ramped up bets for a European Central Bank interest rate cut as early as next week.
Fed policymakers need to add stimulus early to deal with too-low inflation when rates are near zero and can not wait for economic disaster to unfold, a Key Fed policymaker said Thursday. On Friday, those concerns dominated sentiment with the pound weakening 0.2% to $1.2496 against the dollar and 0.1% versus the euro to 89.89 pence.Economists at Berenberg who now assign a 40% probability of a hard Brexit say the choice of Boris Johnson, the favourite to succeed Prime Minister Theresa May, to surround himself with hardline eurosceptics is an indicator of such growing risks.
The greenback was up 0.2% at 107.520 yen, crawling away from a three-week trough of 107.210 on Thursday after the New York Fed's clarification of Williams' comments. The MSCI Asia Pacific Index surged 1.3%, the highest in two weeks on the biggest jump in more than four weeks.
MSCI's emerging market currency index has risen 0.35% so far this week to a four-month high of 1,657.07, coming within sight of this year's double peak around 1,658, hit in late January and March.
Japanese STOCKS rebounded on Friday morning trade, tracking Wall Street moves and clawing back some of the previous session's decline, with the semiconductor sector leading the gains. Traders later wound that back to 35 basis points and the dollar rose after a New York Fed spokeswoman said that Williams's comments had been in the context of an academic speech and were not about potential upcoming policy actions.
Oil price rises on Mideast tensions, stock markets cautious
The UK also has strained relations with Iran after Royal Marines seized a tanker carrying around $120m of oil off Gibraltar. In June, Trump said he called off a retaliatory strike on Iran following Tehran's move to shoot down an American drone .
Bucking the firmer trend, Japan Post Holdings shed 0.4% to an all-time low after the Nikkei business daily reported the country's largest private insurance firm Nippon Life requested Japan Post to halt selling its policies at its affiliate post offices. The two sides resumed talks recently to seek an end to a year-long trade war that has rattled financial markets and slowed global growth.
U.S. money markets priced in 41 basis points of easing in July after the two men spoke. US rates futures implied traders fully expect the Fed to lower rates in two weeks.
The softer dollar was also helping oil prices rally, while Donald Trump's claims that the USA had downed an Iranian drone that threatened an American naval vessel also provided strong support.
Against the Swiss franc it touched a two-year low of 1.103 francs per euro, down 0.41% on the day.
Bets on lower rates were also providing support to higher-yielding, riskier currencies with the Australian dollar and South Korean won climbing 0.6 percent and the Indonesian rupiah 0.5 percent higher. The 10-year yield declined to a 10-day low of 2.023% and was last at 2.0465%.