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Yen bounces as vaccine boost fades

SYDNEY (Reuters) – The Japanese yen edged higher on Friday as investors crept back in to the safe-haven currency on concerns that successful tests of a COVID-19 vaccine may not be enough to offset the economic damage of a trying winter in Europe and the United States.

FILE PHOTO: A Japan Yen note is seen in this illustration photo taken June 1, 2017. REUTERS/Thomas White/Illustration

The yen JPY= rose 0.2% to 104.89 per dollar in the Asia session, its highest since Monday when it tumbled after Pfizer announced that it had developed a working virus vaccine.

The yen remains down by about 1.5% against the dollar this week, its sharpest weekly drop in five months, and softer on most crosses. But the bounce from its lows – along with softness in riskier currencies – shows plenty of caution still remains.

“There are reasons to be optimistic about the global economic recovery, and eventual pandemic submission over the coming year, but we are not out woods yet,” said National Australia bank’s senior currency strategist Rodrigo Catril.

“The Aussie continues to find the air thinning above 73 cents.”

The Aussie AUD=D3 slipped 0.1% to $7224 and is headed for a small weekly loss. The kiwi NZD=D3 was down 0.2% at $0.6824 though is headed for a weekly gain of 0.7% as investors reckon economic improvements have reduced the chance of negative rates.

The euro EUR= rose marginally overnight to clamber back over $1.18, but it is down about 0.6% for the week so far, helping the dollar index =USD to a 0.7% weekly rise. The Chinese yuan CNY= was marginally weaker at 6.6219 per dollar.

In Europe and the United States, a second wave of infections has prompted the re-imposition of restrictions to stop the virus’ spread. That will have markets discounting any good news in eurozone growth numbers due later on Friday.

“The GDP report will have minimal impact on the euro with analysts, including ourselves, now widely expecting a double‑dip recession in the euro zone starting in the fourth quarter,” said Commonwealth Bank of Australia analyst Kim Mundy in a note.

Central bank chiefs likewise warned that the crisis has some way to run, even with the end now in sight thanks to Pfizer’s announcement this week that trials have showed the vaccine it developed with Germany’s BioNTech seems to work.

“From a huge river of uncertainty, we see the other side now,” said European Central Bank President Christine Lagarde in a panel discussion with U.S. Federal Reserve Chair Jerome Powell and Bank of England Governor Andrew Bailey.

“But I don’t want to be exuberant about this vaccination because there is still uncertainty,” she said, about its production and distribution.

Graphic: World FX rates in 2020 here

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