By Gertrude Chavez-Dreyfuss, Kevin Buckland and Sruthi Shankar
NEW YORK/TOKYO (Reuters) - The Japanese yen rose to a three-week high against the U.S. dollar on Monday, while the greenback rallied from an eight-month low, as geopolitical tension in the Middle East intensified, prompting investors to seek shelter in these currencies.
Another safe-haven, the Swiss franc, also rallied against major peers.
Trading activity is expected to be lighter than usual, with UK markets closed for a public holiday.
Israel and Hezbollah fired missiles at each other over the weekend in one of the biggest clashes in more than 10 months of border conflict. Hezbollah launched hundreds of rockets and drones at Israel early on Sunday, as Israel's military said it struck Lebanon with around 100 jets to thwart a larger attack.
"The story today is definitely hinging on geopolitical risk, and we can see the FX market reaction both in the pause in the U.S. dollar selloff and the yen gains this morning," said Helen Given, FX trader, at Monex USA in Washington.
She added that the yen has gained more than the other safe havens, particularly against the dollar, as it continued to benefit from an expected U.S. interest rate cut next month, which was confirmed by Federal Reserve Chair Jerome Powell last Friday in a speech in Jackson Hole, Wyoming.
In mid-morning trading, the dollar dropped to a three-week low against the yen of 143.45 and was last down 0.2% at 144.18 yen.
Helping the yen strengthen, Bank of Japan chief Kazuo Ueda reaffirmed on Friday his resolve to raise interest rates if inflation stayed on course to sustainably hit the 2% target.
Many market participants had expected Ueda to strike a less hawkish tone in a special session of parliament, called amid criticism the BOJ's surprise hike last month helped spark a rapid unwind of bearish yen bets and an aggressive sell-off of Japanese stocks.
The dollar did recover a bit against the yen after data showed U.S. durable goods orders surged 9.9% in July, after falling in June. However, non-defense capital goods orders excluding aircraft, a closely-watched proxy for business spending plans, dipped 0.1% after a downwardly revised 0.5% increase in June.
The dollar index, a gauge of the dollar's value against six major currencies, inched up 0.1% to 100.72, rising from its lowest since late December of 100.53.
The euro eased 0.2% against the dollar to $1.1175, in a sign of a safe-haven move towards the greenback. Sources told Reuters that ECB policymakers are lining up behind another rate cut on Sept. 12.
The risk off sentiment also weighed on the Australian and New Zealand dollars and the Norwegian crown, which were all lower against the dollar, but benefited the Swiss franc.
The dollar fell 0.12% against the Swiss franc to 0.8466 francs. The euro also fell 0.3% against the Swiss currency to 0.9460.
Sterling eased 0.1% against the dollar to $1.3204 after jumping as far as $1.3229 on Friday for the first time in 17 months. Bank of England head Andrew Bailey said on Friday it was "too early to declare victory" over inflation signalling a less aggressive stance on interest rate cuts than the Fed.
Currency
bid
prices at
26
August
02:47
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 100.72 100.66 0.06% -0.64% 100.92 100.
index 53
Euro/Doll 1.1175 1.1193 -0.16% 1.24% $1.1202 $1.1
ar 15
Dollar/Ye 144.16 144.34 -0.14% 2.19% 144.355 143.
n 45
Euro/Yen 1.1175 161.57 -0.29% 3.51% 161.48 160.
51
Dollar/Sw 0.8467 0.848 -0.17% 0.59% 0.8484 0.84
iss 57
Sterling/ 1.3202 1.3216 -0.09% 3.76% $1.3222 $1.1
Dollar 15
Dollar/Ca 1.3465 1.3512 -0.34% 1.58% 1.3515 1.34
nadian 64
Aussie/Do 0.6779 0.6797 -0.25% -0.56% $0.6798 $0.6
llar 768
Euro/Swis 0.9462 0.9486 -0.25% 1.9% 0.949 0.94
s 53
Euro/Ster 0.8463 0.8467 -0.05% -2.37% 0.8475 0.84
ling 51
NZ 0.6211 0.6233 -0.34% -1.69% $0.6233 0.61
Dollar/Do 98
llar
Dollar/No 10.5269 10.453 0.71% 3.87% 10.5705 10.4
rway 505
Euro/Norw 11.7642 11.701 0.54% 4.81% 11.8199 11.7
ay 025
Dollar/Sw 10.192 10.1636 0.28% 1.24% 10.2341 10.1
eden 69
Euro/Swed 11.3898 11.3782 0.1% 2.38% 11.4365 11.3
en 726
(Reporting by Gertrude Chavez-Dreyfuss in New York, Kevin Buckland in Tokyo and Sruthi Shankar in Bengaluru; Editing by David Evans, Kirsten Donovan)
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