Dollar slips but investors seek safe havens in equity rout

By Tommy Wilkes

LONDON (Reuters) - The U.S. dollar slipped on Tuesday after earlier gaining when investors had dumped riskier assets for the relative safety of the greenback, but currency markets were generally calm compared with the rout in equity markets.

The sell-off across world stock markets sent investors rushing into the dollar on Monday, helping the U.S. currency perform well against the euro, British pound and commodity-linked currencies.

But in early European trading on Tuesday the dollar gave back some of those gains, with currency markets not showing the sort of panic movements seen in other asset classes.

The euro rose 0.4 percent, clawing back some of Monday's drop, to trade above $1.2417. Against a basket of currencies, the dollar was down 0.1 percent, after a big jump on Monday.

 

"We are seeing some of the classic signs in currency markets, with the yen and Swiss franc moving higher. But it's nothing dramatic," Alvin Tan, London-based FX strategist at Societe Generale.

"It's fair to say the dollar has been supported but it remains quite moderate," he said, citing the pullback in U.S. treasury yields overnight as a counterbalance to the lure of seeking safty in the greenback.

Tan said if the sell-off in risk assets continued, he expected the dollar to gain further against commodity-linked currencies like the Australian and Canadian dollars but to struggle against the euro and yen.

The Japanese yen and the Swiss franc, which tend to lure investors at times of market stress, both rose but gains were muted.

The dollar slipped to as low as 108.46 yen as the shakeout in equities persisted in Tuesday's Asian trade, but later pared its losses and last changed hands at 109.29 yen.

Investor risk aversion triggered a drop in U.S. bond yields, leading to the fall in the dollar against the yen, said Sim Moh Siong, FX strategist for Bank of Singapore.

"I would see 107 to 108 as the next support for dollar/yen," Sim said, adding that if the selloff picks up further steam the dollar could fall towards 104 yen.

The U.S. 10-year Treasury yield slid about eight basis points to 2.719 percent in Asian trade, down from a four-year high of 2.885 percent set on Monday.

Against the euro, the Swiss Franc was flat on Tuesday at 1.1526 franc, its best level since October.

The Australian dollar steadied after falling on Monday. The Australian currency traded at 78.86 cents, extending a sell-off since late January.

(additional reporting by Shinichi Saoshiro in TOKYO, Editing by William Maclean)