Markets slide, dollar slumps as North Korea fears spike

GBP  JPY Daily Chart

GBP JPY Daily Chart

Trump issued a new tweet-warning to Pyongyang on Friday: "Military solutions are now fully in place, locked and loaded, should North Korea act unwisely".

President Donald Trump warned North Korea again on Thursday not to strike Guam or US allies, saying his earlier threat to unleash "fire and fury" on Pyongyang if it launched an attack may not have been tough enough.

The Japanese yen hit an eight-week high against the US dollar, and USA -traded Nikkei stock futures dropped 2 percent to their lowest since mid May.

The Swiss franc and Japanese yen are often sought out in times of geopolitical tension or global financial stress, partly because both countries have big current account surpluses. "North Korean tensions continue to escalate", leaving the Swiss Franc, and possibly the US dollar, as the remaining beneficiaries of risk aversion, Emmanuel Ng, currency strategist at OCBC Bank in Singapore, wrote in a note. This week has seen its biggest rise since June 2016.

In bond markets, the yield in U.S. Treasuries fell, also pressured by the lowered expectations for a Fed move.

"For quite some time the market hasn't really reacted to things on the Korean Peninsula because we know from the past it is largely North Korean sabre-rattling, and it may yet be". It earlier hit its highest since June 7 at $1,291.86. USA gold futures for December delivery was mostly unchanged at $1,290.50 per ounce.

The pan-European FTSEurofirst 300 index lost 1.01 percent and MSCI's gauge of stocks across the globe shed 0.26 percent for a weekly loss of 1.6 percent, the largest since the week to November 4. It soared over 2 percent in the previous two sessions, and is set for a weekly gain of 2.25 percent. Spot gold reached a two-month high.

According to the Associated Press, South Korea's Kospi lost 1.7 percent, while Hong Kong's Hang Seng slid 2 percent.

US President Donald Trump's brinkmanship in the escalating tensions with North Korea has taken a heavy toll on global markets, wiping $1 trillion off the value of shares worldwide. The kiwi was 0.79 percent lower against the greenback after New Zealand's central bank said it was slightly more uncomfortable with the high level of the local dollar than it had been in May.

"This situation is beginning to develop into this generation's Cuban Missile crisis moment", ING's chief Asia economist Robert Carnell wrote in a note.

The dollar index, which tracks the greenback against six rival currencies, was down 0.17 percent to 93.391.

Ongoing global glut concerns lingered in oil markets despite a bigger-than-expected draw in US crude inventories, leaving prices volatile.

The Korean won continued to fall versus the dollar, down 0.13 per cent to 1,143.5 on Friday for a 1.6 per cent decline on the week.

US crude was down 0.9 percent at $48.16 per barrel, on track for a weekly loss of 2.9 percent.

Investor focus now turns to Friday's U.S. consumer price index data. The Federal Reserve is likely to scale back on its expected pace of interest rate hikes if inflation continues to be soft.

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