January 20, 2016 / 8:54 AM / in 2 years

FOREX-Yen hits 1-year high vs dollar as risk appetite wanes with oil

* Yen sought after as world’s stock markets tumble

* Canadian dollar braces for potential interest rate cut

* Pound struggles near 7-year low on BoE’s Carney comments (Adds quotes, updates)

By Anirban Nag

LONDON, Jan 20 (Reuters) - The safe-haven yen soared on Wednesday, as risk appetite soured after crude oil prices fell to near 13-year lows, dragging the dollar to a one-year low with investors trimming the chances of more tightening by the Federal Reserve.

The dollar fell more than 1.2 percent to 116.10 yen in London trade, its lowest since January 2015. The dollar had risen to 118.115 on Tuesday, after risk appetite showed tentative signs of recovery amid a bounce in crude oil prices and hopes of further stimulus in China.

But that rally fizzled out with oil resuming its downward trek, hurting sentiment towards stocks and encouraging investors to buy yen, Swiss francs, German Bunds and U.S. Treasuries.

The euro, a low-yielding currency used by investors to fund riskier positions, also rose against the dollar to $1.0943 . But it underperformed the yen, and was down 0.7 percent at 127.34 yen.

“The yen has shown maximum sensitivity to risk sentiment in the recent weeks,” Credit Agricole currency strategist, Manuel Oliveri, said. “The upside for the yen, though, is likely to be capped before the Bank of Japan meeting next week, given they too are struggling with weakening inflation prospects.”

Lower crude prices are posing a challenge to policymakers in much of the developed world.

Talk of recession risk in the United States has intensified in the past few days amid rising market volatility, lower oil prices and slowing domestic activity, driving investors to price in chances of just one rate hike by the Fed in 2016.

Collapsing oil prices will play a big role when the Bank of Canada (BoC) meets later on Wednesday. Some are expecting the BoC to lower interest rates to cushion the blow from oil prices.

The Canadian dollar was heading for its 13th straight trading day of losses against its U.S. counterpart, hitting C$1.4654 per dollar, its lowest in 13 years.

“Investors have rapidly moved to price in greater risk of a cut from the BOC this week, partly driven by lower oil prices in the wake of the shift in sanctions on Iran,” CitiFX currency strategists said.

“With longer-term investors having lagged the leveraged sector in selling the Canadian dollar, there should be scope for catch-up and further downside on spot.”

Sterling struggled near a seven-year low after being hit on Tuesday by dovish comments from Bank of England (BoE) Governor Mark Carney, who said he had no set timetable for raising interest rates, warning of more damage to come from a slowing economy in China, the world’s second biggest economy.

The pound was weaker at $1.4150 after falling to $1.4130 on Tuesday, its lowest since March 2009 as investors await a wages and jobs report later in the day. (Additional reporting by Shinichi Saoshiro; Editing by Louise Ireland)

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