By Sinéad Carew
The U.S. dollar lost ground to the Japan's yen for the fifth straight day and the yen was at a seven-week high against the greenback on Friday as investors sought safety amid concerns about a resurgence in coronavirus cases in Europe and a lack of progress in U.S. fiscal stimulus negotiations.
Strategists also cited investor nerves ahead of the Nov. 3 U.S. election and U.S.-China tensions as the dollar index <=USD> registered its first weekly decline since August.
Sterling fell after Britain discussed negative rates and signaled it was considering a second national lockdown as new COVID-19 cases almost doubled while hospital admissions rose and infections soared in London and northern England.
And France's health ministry on Friday reported the country's highest number of COVID-19 infections for a single day since the coronavirus outbreak began.
There has been "a wave of risk aversion" due to growing concerns about the fight with the coronavirus, said Edward Moya, senior market analyst at OANDA in New York.
"Europe seems to be losing its battle right now," said Moya. "You're having a lot of downbeat news as far as reopening of the economy and this is likely to weigh on risk appetite."
While the euro was virtually unchanged against the dollar at $1.1851 <EUR=EBS>, it was down for its fourth day out of five against Japan's currency, last trading at 123.90 yen.
The dollar, after falling to 104.27 yen earlier in the session - its lowest level against Japan's currency since July 31 - last traded at 104.53, down 0.19% on the day <JPY=EBS>. While the dollar <=USD> was basically flat on the day against a basket of currencies, it showed a weekly decline after two weeks of gains.
Along with politics, Japan's policy of yield curve control was also a factor as it was pushing up real interest rates, said Boris Schlossberg, managing director of FX strategy at BK Asset Management.
"Japanese market conditions are much tighter than they seemingly appear despite QE from the Bank of Japan," said Schlossberg. "That's creating a distinct and significant tilt toward the yen."
While U.S. equities have kept close to their record highs, Schlossberg said dollar weakness may signal more volatility to come ahead of the Nov. 3 U.S. elections where Republican President Donald Trump will face off against Democratic challenger Joe Biden.
"Markets always hate uncertainty. At this point everybody is convinced that an unambiguous win is not the most likely scenario," he said.
Schlossberg also pointed to heightening U.S.-China tensions due to a Trump administration plan to ban WeChat and video-sharing app TikTok from U.S. app stores starting Sunday night, blocking Americans from the Chinese-owned platforms over national security concerns.
Tokyo markets will be closed on Monday and Tuesday next week, so investors positioning for thin liquidity may have helped the yen.
While the New Zealand dollar <NZD=D3> pared gains to trade up 0.16% at $0.6765, earlier in the day it had hit its highest in a year and a half after the country's finance minister sounded positive about the economy in television interviews. The Reserve Bank of New Zealand meets next week.
While strong British consumer spending had helped sterling earlier, it was last down 0.33% at $1.2929 <GBP=D3>.
Currency bid prices at 2:54PM (1854 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Euro/Dollar EUR= $1.1851 $1.1847 +0.03% +5.74% +1.1870 +1.1828
Dollar/Yen JPY= 104.5300 104.7300 -0.19% -3.98% +104.8600 +104.2800
Euro/Yen EURJPY= 123.90 124.09 -0.15% +1.60% +124.3000 +123.4400
Dollar/Swiss CHF= 0.9098 0.9083 +0.17% -5.99% +0.9112 +0.9076
Sterling/Dollar GBP= 1.2929 1.2972 -0.33% -2.47% +1.2999 +1.2917
Dollar/Canadian CAD= 1.3196 1.3164 +0.24% +1.62% +1.3208 +1.3137
Australian/Doll AUD= 0.7298 0.7312 -0.19% +3.96% +0.7333 +0.7284
Euro/Swiss EURCHF= 1.0784 1.0760 +0.22% -0.61% +1.0794 +1.0758
Euro/Sterling EURGBP= 0.9165 0.9130 +0.38% +8.40% +0.9178 +0.9116
NZ NZD= 0.6765 0.6754 +0.16% +0.43% +0.6797 +0.6748
Dollar/Norway NOK= 9.0852 9.0478 +0.41% +3.49% +9.0994 +9.0170
Euro/Norway EURNOK= 10.7690 10.7210 +0.45% +9.46% +10.7878 +10.6937
Dollar/Sweden SEK= 8.7575 8.7648 -0.13% -6.29% +8.7934 +8.7512
Euro/Sweden EURSEK= 10.3826 10.3963 -0.13% -0.83% +10.4143 +10.3790
(Additional reporting by Karen Brettell in New York, Elizabeth Howcroft; Editing by Marguerita Choy, Steve Orlofsky and Jonathan Oatis)