TOKYO (Reuters) – The dollar edged up to a three-week high against the yen on Tuesday amid hopes that the closely-watched U.S.-North Korea summit can pave the way towards a reduction in tensions between the two old foes.
U.S. President Donald Trump said he had forged a “good relationship” with North Korean leader Kim Jong Un on Tuesday, as their two countries tried to reach a diplomatic breakthrough at a landmark summit in Singapore.
The two men are seeking ways to narrow differences over how to end a nuclear standoff on the Korean peninsula.
The meeting, a key event for world markets, comes just months after they traded insults and tensions spiraled in the region over North Korea’s nuclear and missile programs as it raced toward the goal of developing a nuclear-tipped missile capable of hitting the United States.
The U.S. currency rose to as high as 110.495 yen JPY=, its strongest since May 23.
The dollar’s rise against the yen, a perceived safe haven often sought in times of political tensions and market turmoil, reflected optimism that the Trump-Kim summit would open the door to the eventual denuclearization of North Korea.
The greenback was last up 0.2 percent at 110.230 yen, nudged off highs after news that White House economic adviser Larry Kudlow suffered a heart attack. The U.S. currency was not quite able to muster the momentum to stretch its gains as the markets waited for the outcome of the Trump-Kim meeting.
“Much of the movements in currencies leading up to the summit appears to be algo-driven with many other players sidelined, confining pairs like dollar/yen to relatively narrow ranges,” said Yukio Ishizuki, senior currency strategist at Daiwa Securities in Tokyo.
“The ‘risk on’ mood sustaining dollar/yen will remain intact as long as the summit does not end acrimoniously with the two leaders saying this is it,” Ishizuki said.
Still, negotiations between Washington and Pyongyang could turn out to be a long drawn process and investor focus was expected to shift toward the week’s other key events, notably central banks meetings.
The U.S. Federal Reserve holds a two-day meeting starting on June 12, and it is widely expected to raise interest rates for the second time this year. The focus is on whether the central bank will hint at raising rates a total of four times in 2018.
The European Central Bank also meets on June 14, when it could signal intentions to start unwinding its massive bond purchasing program.
“While an encouraging U.S.-North Korea summit outcome would be supportive for the dollar, participants may opt to wait out the next big event, the FOMC (Federal Open Market Committee) meeting before committing themselves,” said Shin Kadota, senior strategist at Barclays in Tokyo.
The Bank of Japan also concludes a two-day meeting on Friday at which it is widely expected to keep its loose monetary policy intact.
Against a buoyant dollar, the euro was 0.15 percent lower at $1.1768 EUR=.
The single currency reversed modest gains made on Monday after assurances from Italy that it would not leave the European Union calmed investors’ nerves.
The dollar index against a basket of six major currencies climbed 0.15 percent to 93.715 .DXY.
The Australian dollar was up 0.1 percent at $0.7617 AUD=D4 after slipping to $0.7584.
Editing by Jacqueline Wong
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