USD/JPY off 2-1/2-month lows as demand for safe-haven decreased

The yen retreated from the strongest level in 2-1/2 months against the US dollar, as a rally in emerging-market currencies decreased demand for haven assets.

USD/JPY hit the lowest level in more than two months at 100.75 at 06:00 GMT, after which the pair traded at 101.42 at 13:44 GMT, adding 0.44% for the day. Support was likely to be received at November 21st low, 100.17, while resistance was to be met at February 3rd high, 102.42.

The Turkish lira gained 1.45% to 2.2502 per US dollar by 13:47 GMT, trimming this year’s decline to 4.8%, while the South African rand climbed 1.25% to 11.1398 per US dollar by 13:48 GMT.

“Emerging-market currencies are stronger and the yen is impacted by that,” said Lutz Karpowitz, a senior currency strategist at Commerzbank AG in Frankfurt, cited by Bloomberg. “The yen was pretty strong this morning but equity markets didn’t open as badly as we expected.”

The yen drew support earlier in the day as the nations Nikkei 225 Stock Average yesterday registered the largest one-day slump in 8 months, plunging 4.2%, after US manufacturing data raised concerns for further sell-off in emerging markets.

Meanwhile, greenback’s demand was heavily pressured yesterday, after the US Institute for Supply Management (ISM) reported its manufacturing index declined to the lowest level in seven months in January, due to a slump in new orders.

The report revealed that the manufacturing index stood at 51.3 in January, down from December’s reading of 57.0, while analysts had projected that the index will slow down to 56.0 in January. Data also showed that new orders plunged at the fastest pace since December 1980, as the new orders sub-index declined to 51.2 in January from 64.4 in the previous month. Most of the companies cited the bad US weather conditions last month as the main reason for the decreased number of new orders.

A report by the US Census Bureau later today may show the US factory orders declined by 1.8% in December, following November’s 1.8% increase. A higher-than-expected reading will certainly heighten the appeal of the US dollar.

According to Bloomberg Correlation-Weighted Indexes, the yen strengthened 6.1% this year, the best performer among 10 developed-nation currencies, following a slump in emerging-market currencies, which fueled demand for haven assets. At the same time, the greenback gained 1.6%.

Elsewhere, GBP/USD hit a seven-week low at 1.6258 at 06:10 GMT, after which the pair erased earlier losses to trade at 1.6336 at 10:02 GMT, adding 0.19% for the day. Support was likely to be received at December 17th low, 1.6220, while resistance was to be encountered at February 3rd high, 1.6438.