By Marc Jones
LONDON (Reuters) - Shares and other risk assets barely moved and gold fell on Friday as traders paid little attention to the latest missile test by North Korea, shifting their focus to where and when interest rates will go up.
London, Frankfurt and Paris were a shade lower and futures pointed to a steady start for Wall Street was after Pyongyang fired a second test missile in as many weeks over Japan, but both regions looked set for their best week since July. [.EU]
The yen was also pushed lower to 111.2 per dollar in the currency markets, but that too was a continuation of trend.
The Japanese currency has seen its biggest fall this week in 10 months while the dollar is headed for its biggest rise since April, thanks to a revival in U.S. inflation data and bets the Federal Reserve could raise rates again this year after all.
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"You have risk appetite returning in the markets more generally at the moment, so you have all these forces pushing down the yen," said Vasileios Gkionakis, global head of FX strategy at UniCredit.
Britain's pound was the other main standout, rising to a 14-month high of $1.3430 as the Bank of England reiterated that it might soon raise interest rates for the first time in a decade.
"If these data trends of reducing slack, rising pay pressure, strengthening household spending and robust global growth continue, the appropriate time for a rise in the Bank Rate might be as early as in the coming months," Gertjan Vlieghe, normally one of the BoE's most dovish members, said.
Sterling was also on course for its best week in over eight years on a trade-weighted basis and since November 2016 against the euro, which finally looks to have cooled following its surge this year.
"If they don't do it (hike rates) this time, their credibility will be lost completely for the next few years," Unicredit's Gkionakis said. Markets expect the BoE to move in November, he added.
The BoE signals fed into bond markets, too. Yields pushed up after dipping overnight on the geopolitical tensions. Safe-haven gold was also heading for its biggest weekly drop since July.
North Korea's latest test missile flew over Japan's northern island of Hokkaido before landing about 3,700 km (2,300 miles) into the Pacific Ocean, which would be far enough to reach the U.S. Pacific territory of Guam.
Germany's 10-year government bond yield, the benchmark for the region, inched up to 0.43 percent to flirt with its biggest weekly rise since late June.
U.S. yields have also jumped. U.S. Fed funds rate futures on Friday were pricing in a roughly 45 percent chance the Fed will raise rates by December, versus around 25 percent at the start of this week.
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U.S. stock futures pointed to an almost flat start for the S&P 500, which is on track for a near 1.5 percent rise this week after another run of record highs. [.N]
MSCI's Asia-Pacific share index excluding Japan shed 0.1 percent in reaction to the North Korea missile overnight, though it was still up 0.7 percent on the week.
Japan's Nikkei gained 0.5 percent and a more than 3 percent jump gave it its best week since November in a directly inverse move to the yen.
"There have been reports (for a while) suggesting North Korea is preparing a missile launch, so this was by no means a surprise," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.
"In a way, this seems like something markets have already experienced before, thus producing a limited reaction," he added.
Oil prices largely held the gains that had tested multi-month highs the previous day as the clean-up after hurricanes in the United States meant a firmer tone for demand.
Brent crude futures traded at $55.66 per barrel, up 0.3 percent on the day and 2.5 percent on the week. They hit a five-month high of $55.99 on Thursday.
Elsewhere, bitcoin retreated another 6.5 percent after having tumbled 16 percent on Thursday, when Chinese news outlet Yicai reported that China plans to shut down all bitcoin exchanges by the end of September.
BTCChina, one of China's top three exchanges, said on Thursday that it would stop all trading from Sept. 30.
The cryptocurrency was down for an eighth consecutive day at close to $3,000 and was on track for its worst week since 2013, having slumped almost 30 percent since Monday.
(Additional reporting by Hideyuki Sano in Tokyo, editing by Larry King)
Disclaimer: No Business Standard Journalist was involved in creation of this content
