Yen Surges Upward on Increase of Risk Appetite As Euro Anticipates ECB

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Investors are fleeing to safety as the Delta Covid-19 variation spreads alarmingly over the world. The Japanese yen is a typical safe-haven asset, with investors selling risky assets like the Australian dollar and buying yen instead. The Delta variation is thought to have a significant detrimental impact on world growth. This might hasten the shift away from risky assets and toward safe havens like the yen.

In Monday’s trading, the Japanese yen has made significant gains. USD/JPY is currently trading at 109.50 towards the end of the North American session, down 0.47 percent on the day. The pair had fallen as low as 109.06 earlier in the day, its lowest level since May.

The yen and the Swiss franc are dominating the markets for the day, as stock selloffs spread from Asia to Europe and the United States. With the DOW down nearly -800 points in early trading and the 10-year yield breaking the 1.2 level, risk appetite has increased. The worst-performing currency is the Canadian Dollar, as WTI crude oil falls below the 70-mark.

At the Olympic athlete’s village in Tokyo, officials certify a positive Covid-19 case (2 South African soccer players at the Olympics have tested positive for Covid-19). Furthermore, to the deteriorating Covid-19 situation, hostilities between the US and China have risen, with telecommunications and cybersecurity worries joining Hong Kong and human rights concerns. If the rhetoric between the two superpowers becomes more acrimonious, risk appetite is likely to deteriorate even further.

As Yen Surges, Euro Anticipates ECB Meeting

The ECB’s monetary policy meetings are usually quiet affairs with little market action. The meeting on Thursday will almost certainly be different, and it could be a market-moving event. The reason for this is that the ECB is likely to make significant policy changes.

The European Central Bank (ECB) delivered a strategy review earlier this week, and ECB President Christine Lagarde stated that forward guidance would be reviewed to align it with the strategy review. This suggests that some significant modifications to forward guidance may be made during the meeting.

The markets consider the ECB, as well as the Swiss and Japanese central banks, to be quite dovish. The euro is unlikely to see any big gains this week, as the ECB is expected to maintain its dovish attitude. Investors will be able to focus on some “hard” data, such as consumer confidence and eurozone PMI readings, once the ECB meeting is over.