Paris attacks may hit eurozone economy

The dollar added about 0.1 percent to 123.27 yen (JPY=), away from the previous session’s one-week low of 122.23, as investor risk aversion faded.

The euro traded virtually unchanged at US$1.0645 from US$1.0644 Tuesday in NY, while the greenback dropped to ¥123.28 from ¥123.39 in U.S. trade. Media reports that separate Air France flights to Paris from the United States were diverted as a security precaution also weighed on sentiment. The MSCI Asia Pacific Index climbed 1.3 percent, the Hang Seng Index advanced 2.1 percent in Hong Kong while Japan’s Topix index advanced 1.2 percent as the yen extended Monday’s decline against the dollar.

In Paris, gunfire and explosions shook the suburb of St Denis early on Wednesday as police raided an apartment where a Belgian suspected of masterminding the attacks was believed to be holed up.

The dollar index was lower at 99.483 after touching 99.745 on Tuesday, its highest since mid-April. In sharp contrast with the Fed, the European Central Bank is considered very likely to expand or extend its quantitative easing programme next month.

The bank’s chief economist Peter Praet said on Tuesday that such events hurt confidence while executive board member Yves Mersch said on Wednesday that “doom and gloom” talk was at this stage not warranted.

“Safe havens like the USA dollar were in demand Monday as the attacks on Paris added a new layer of uncertainty for markets”, said Joe Manimbo, senior market analyst at Western Union Business Solutions. The dollar had surged after the Fed left the door open for a December rate hike at the meeting held late in October. A lower euro could help push inflation higher as it increases the price of imports.

South Korea’s won dipped 0.2 per cent, the Australian dollar eased 0.1 per cent, Indonesia’s rupiah shed 0.4 per cent and the Malaysian ringgit was 0.1 per cent lower.

The history of terror incidents around the world during the past 15 years shows market reactions have become increasingly short-lived. Annual consumer prices rose 0.1% in the month, compared with a flash estimate for stagnation and up from minus 0.1% in September.

“Given that the beginning of 2016 is likely to bring renewed vigor to risk-taking, we think it is perfectly possible for EUR/$ to reach 0.95 — our 12-month forecast — by end- March”, he wrote.

A weaker euro also means cheaper travel and shopping for tourists, particularly Americans and Chinese, whose own currency is linked to the dollar and tend to splurge on luxury goods in Europe. “If the European Central Bank is stressing the de-anchoring of inflation expectations, and the Fed playing them down, then that stresses that we are going to see monetary policies moving in different directions”.

That’s also true because the Fed is aware that when it comes to the euro-dollar exchange rate, the eurozone’s gains are the U.S.’s loss.

Still, they remained not far from 6-1/2-year lows hit in August on concerns about a global supply glut.