FOREX-Yen shines as hedge funds flee from short bets


* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh

By Saikat Chatterjee

LONDON, Aug 12 (Reuters) - The yen gained on Monday, risingto its highest against the dollar in nearly a year and a half ashedge funds bought the Japanese currency on concerns that aprolonged China-U.S. trade war could tip the global economy intorecession.

The rest of the foreign exchange market, meanwhile, sawmajor currencies such as the euro and the dollar pinned in tightranges after Friday's comments from U.S. President Donald Trump,saying that the United States would not agree a trade deal withBeijing for now. urn:newsml:reuters.com:*:nW1N23R00L

Against the dollar JPY=EBS the yen climbed a quarter of apercentage point to 105.32 yen, closing in on its highestagainst the U.S. currency since March 2018, barring a flashcrash in January this year.

The yen also registered similar gains against the euro EURJPY= and the British pound GBPJPY= , rising by a quarterof a percentage point and two tenths of a point respectively.

"Risk indicators and global markets have become more shakyand the yen is reflecting those concerns, and safe-havenshelters like the yen and the Swiss franc should continue tobenefit," said Commerzbank currency strategist Esther Reichelt.

Goldman Sachs has cut its forecast for U.S. economic growth,warning at the weekend that a trade deal is unlikely before the2020 presidential election and that the risks of recession areincreasing. urn:newsml:reuters.com:*:nL4N257086

The yen is the top performer among its big rivals in globalforeign exchange markets, rising 3% this month as investors haveshown increased demand for Japanese government bonds after Chinaweakened the yuan below 7 per dollar last week.

As a result, hedge funds that usually borrow in yen tofinance leveraged bets in other asset classes have been forcedinto a rapid unwinding of short positions on the yen, sendingthe Japanese currency higher.

All eyes will be on Chinese figures on July retail sales andindustrial output, due on Wednesday, to gauge the impact ondomestic activity from the long-running trade conflict with theUnited States.

Market attention will also be on the U.S. Federal Reserveannual symposium at Jackson Hole later in the week, with investors seeking greater clarity on the future path of interestrates. Markets are expecting 60 basis points of rate cuts fromthe Fed by the end of the year. FEDWATCH

The euro was a shade firmer against the dollar at $1.1207EUR= , bound between resistance at $1.1249 and support at$1.1175.

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(Reporting by Saikat ChatterjeeEditing by David Goodman) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))




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