Yen jumps as oil, AI and France worries rattle markets

In this news:

Key takeaways

The Japanese yen recorded its strongest daily gain in nearly a month amid safe-haven demand.
Brent crude climbed following Houthi attacks in Saudi Arabia and Middle East conflict concerns.
Fears over French social unrest and fiscal deficits pushed the euro down against the dollar.

Global market pressures

The yen was on track for its strongest daily gain in almost a month on Thursday, as investors sought safety amid fragile equity markets, elevated crude prices from the drawn-out war in the Middle East, and doubts over future returns from artificial intelligence.

The US dollar, meanwhile, rose against the euro. Worries about social unrest in France and a worsening fiscal outlook for the country outweighed concerns about the AI trade, which pushed US stocks lower.

“AI is making people nervous, as is oil … and as is France, and obviously we have a slight degree of risk aversion in the market,” said Chris Scicluna, head of economic research at Daiwa Capital Markets.

Commodity and currency shifts

Brent crude climbed to its highest level since May after further Houthi attacks in Saudi Arabia raised fears of an escalation in the Middle East conflict and more disruption to oil supplies from the key exporting region.

The Japanese yen strengthened 0.51 percent to 157.33 per dollar. The Swiss franc, another traditional safe haven, was little changed at 0.824 per dollar.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, rose 0.14 percent to 101.82, with the euro down 0.3 percent at USD1.1198.

The dollar has become increasingly tied to capital flows and to growth and inflation expectations linked to the AI trade. It fell last week as fears over the AI outlook grew. On Thursday, however, concerns about France outweighed those fears.

“You have these competing stories and weak points between US AI-related credits and then France sovereign credit, and we’ve seen this push and pull in the last couple of days where at times one is more of a concern than the other,” said Erik Nelson, global head of FX strategy at Wells Fargo. “As long as France is more of a concern than US AI credits, then you’re going to see the euro underperform.”

European debt and crypto reaction

French President Emmanuel Macron vowed on Wednesday to prevent a repeat of last weekend’s violence at protests planned in the coming days, and dismissed as “stupid” and “unacceptable” comments from some foreign leaders about the unrest.

Concerns about France’s ability to manage its huge debt burden have hurt French government bonds and raised worries about other heavily indebted euro zone countries. The spread between France and Germany’s 10-year note yields reached 177.7 basis points on Thursday, the widest gap since 2011.

Sterling weakened 0.18 percent to USD1.337. The Australian dollar fell 0.21 percent to USD0.7012.

In cryptocurrencies, bitcoin fell 3.20 percent to USD81,929.

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