Traders across the globe reacted with dismay to Trump’s warning Thursday that his earlier threat to unleash “fire and fury” on the reclusive nuclear-armed state may not have been “tough enough”.
The euro was down 0.4 percent at just over $1.17 and nearing a two-week low, while the New Zealand dollar tumbled a full 1 percent as its central bank head bluntly said he wanted it lower.
Japanese markets were closed for a holiday but the tense mood dragged Asian shares lower and an MSCI index of stocks across the globe was on track to post its largest weekly drop since the week before Donald Trump won the USA presidential election in November.
The greenback also came under pressure after New York Federal Reserve President William Dudley cautioned it would “take some time” for U.S. inflation to reach the bank’s two percent target, the latest warning price pressures remain muted.
The possibility of war breaking out on the Korean Peninsula is “very low” and tensions between the USA and North Korea will probably dip around September or October, according to Yang Moo-Jin, a professor at the University of North Korean Studies in Seoul. Futures pointed to further declines on Wall Street, with S&P 500 futures down 0.3 percent at 2,465.70 and Dow futures falling 0.2 percent to 21,986.00.
South Korea’s KOSPI fell 1.8 percent to an 11-1/2-week low, but its losses for the week are a relatively modest 3.2 percent.
US crude rose 0.43 percent to $48.80 per barrel and Brent was last at $52.01, up 0.21 percent on the day.
“Most investors will be completely out of their depth in making any assessment on the (North Korea) situation”, said Koon Chow, emerging market FX strategist at fund manager UBP.
But the yen added to an already-strong weekly rally of close to 1.5 percent, hitting its highest in nearly four months versus the dollar at 108.73 yen.
The yen tends to benefit during times of geopolitical or financial stress as Japan is the world’s biggest creditor nation and there is an assumption that Japanese investors will repatriate funds should a crisis materialise.
The Korean won also continued to fall, down 0.45 percent to 1,147.2.
“If the data continues to come in on the softer side, the market might start to price the Fed staying on hold this year”, said Sireen Harajli, FX strategist at Mizuho in NY.
European markets also slid in early trade after Wall Street indices suffered their biggest losses in almost three months Thursday, while the dollar struggled to recover from eight-week lows below 109 yen as investors fled to safe haven assets. The UK trading session took USD/CHF lower to hit a day low of 0.9630 towards the closing bell, but closed up slightly on the day by 0.03%.
Materials, a sector that includes gold producers and other resource-based companies, was the lone gainer among the index’s 10 main sectors, rising 0.7 percent.
In bond markets, the yield on U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move.
Benchmark 10-year notes last rose 7/32 in price to yield 2.1888 percent, from 2.211 percent late on Thursday.
The 30-year bond last /32 in price to yield 2.7933 percent, from 2.794 percent late on Thursday.
The market’s backstop safety asset, gold, edged up to its latest two-month high of $1,288 an ounce.
The CBOE Volatility Index, the most widely followed barometer of expected near-term US stock market volatility, hit its highest mark since November 8, when Trump was elected president. US gold futures for December delivery was mostly unchanged at $1,290.50 per ounce. Brent crude was up 80 cents at $53.50 a barrel and US crude was up 60 cents and back up to $50.