FOREX-Yen slips as geopolitical tension eases, but sentiment fragile

Reuters

* Yen under pressure as safety demand eases

* Markets still keeping a wary eye on geopolitical developments

By Ian Chua

SYDNEY, Aug 11 (Reuters) - The yen nursed losses early on Monday after coming under pressure late last week as a slight easing of geopolitical tensions dampened demand for the safe-haven Japanese currency.

The dollar bought 102.13 yen, having bounced off Friday's two-week trough of 101.51. The euro fetched 136.88 yen , well off an 8-1/2 month low of 135.73.

News on Friday that Russia was ending military drills near the Ukrainian border helped U.S. stocks post their best one-day gain since March.

That in turn lifted hopes that Asian stocks can also rebound from their biggest weekly fall in over four months.

In a further boost to risk sentiment, Israel and the Palestinians agreed on Sunday to an Egyptian proposal for a new 72-hour ceasefire in Gaza starting at 2100 GMT.

"The conclusions from the weekend are that conflicts are cooling, and the risk-off events of the past two weeks may see upside risk as de-escalation spreads across the conflicts," said Evan Lucas, strategist at IG in Melbourne.

With little in the way of major economic data out of Asia on Monday, markets will continue to watch these geopolitical developments.

However, some traders warned that investors could quickly turn risk averse again given how volatile the situation is between Russia and Ukraine.

In the meantime, the euro clung onto most of the gains made on Friday. It traded at $1.3405, having climbed 0.3 percent.

Commodity currencies also enjoyed a bit of a reprieve with the Australian dollar at $0.9275, off a two-month low of $0.9239 plumbed on Friday.

Aussie bulls were still recovering from last week's setback, first from a shock jump in the country's jobless rate and then a downgrade in the central bank's forecasts for economic growth.

In contrast, the Bank of England could upgrade Britain's growth prospects in a closely watched inflation report due on Wednesday.

That could help support sterling, which on Friday slumped to an eight-week trough on the dollar and a six-week low on the euro.

(Editing by Shri Navaratnam)

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