Yen slips, dollar rises after North Korea report

London, June 7: The yen slipped against the dollar on Thursday after reports that North Korea fired short-range missiles, triggering broad-based buying of the U.S. currency particularly against European units.

The dollar also gained support from rising U.S. yields, with benchmark 10-year Treasury yields breaking above 5 percent on prospect of higher global interest rates.

In the absence of key U.S. or European data, trading was technically-driven, with investors also looking to the equity markets for direction to gauge risk appetite.

South Korea's Yonhap news agency quoted a government official as saying that North Korea fired several short-range missiles off its west coast.

''I think North Korea is being seen as a catalyst (for dollar strength), but realistically, with 10-year yields in the U.S.

picking up above 5 percent, the yield spread is also giving the dollar some support,'' said Jeremy Stretch, strategist at Rabobank.

By 1030 GMT the dollar was up a quarter percent at $1.3469 per euro and 121.36 yen.

The euro erased earlier gains to stand flat on the day at 163.47 yen, having hit a lifetime high of 164.61 on Tuesday.

The dollar was up 0.6 percent at 1.2231 Swiss francs.

Earlier, the Australian dollar hit a fresh 18-year high after firm jobs data, while the New Zealand dollar hit a 22-year post-float high versus the U.S. dollar after the central bank unexpectedly raised interest rates.

The New Zealand dollar rose as high as US$0.7569, while the Australian dollar strengthened to US$0.8476, its highest level since February 1989.

Risk Appetite Persists

Investors are focusing on the performance of equities for indications of how carry trades will perform going forward. A sharp fall in Chinese stocks earlier this year triggered broad-based unwinding of high-yielding currencies and buying of the yen.

Chinese shares ended up three percent on Thursday and European stocks opened higher, snapping a three-day losing streak.

Low Japanese interest rates and strong risk appetite are encouraging investors to buy into carry trades where they borrow the low-yielding yen to fund purchases of higher yielding assets.

Rising Japanese 10-year government bond yields reflected growing concerns over a possible interest rate hike but the market is only pricing in a 10 percent chance that rates will be raised in June and there is only one hike expected by year-end.

Japan's vice finance minister Hideto Fujii said that big rises in interest rates were not good as they could hurt the economy.

''The yen is at very weak levels which is a reflection of global risk appetite. It's the same old story, carry is still in force,'' said Tom Levinson, FX strategist at ING.

''It's part of a general perception that there's nothing out there to dampen enthusiasm and no one can see anything to derail this.''

Reuters