Shutterstock photo* Spike in dollar funding costs weigh on greenback
* U.S. yields set for 2nd biggest weekly drop this year
* Graphic: World FX rates in 2018 http://tmsnrt.rs/2egbfVh
LONDON, March 23 (Reuters) - The Japanese yen raced to itshighest level in more than 16 months and the Swiss franc surgedon Friday as the growing threat of a trade war promptedinvestors to take shelter in perceived low-yielding currencies.
With short positions in the yen at near record highs,according to weekly positioning data, thanks to years of usingthe Japanese yen as a funding currency to buy high yielders,markets braced for some unwinding of those bets.
"Trade wars, the spike in dollar funding costs and a trickyquarter end means that currency markets can become a bit messygoing into next week," said Marc Ostwald, a global strategist atADM Investor Services International in London.
The dollar fell to as low as 104.635 yen on Friday, thegreenback's lowest level since November 2016. The dollar waslast down 0.5 percent at 104.80 yenJPY=EBS .
The broad rise in the yen came as financial markets wererattled by worries over rising U.S.-China trade tensions.
U.S. President Donald Trump signed a presidential memorandumon Thursday that will target up to $60 billion of Chineseproducts with tariffs, but only after a 30-day consultationperiod that starts once a list of goods is published.
The broad rise in the yen came as financial markets wererattled by worries over rising U.S.-China tradetensions. urn:newsml:reuters.com:*:nL1N1QZ0DZ
A gauge of stress in the U.S. money markets climbed to itshighest level in nearly nine years on Tuesday on concerns aboutgrowing costs for banks and other companies to borrow dollarsand further interest rate increases from the Federal Reserve.
The gap between the three-month dollar London interbankoffered rate USD3MFSR= and three-month overnight indexed swaprate USD3MOIS= expanded to 58 basis points, the widest sinceMay 2009, according to Thomson Reuters data. urn:newsml:reuters.com:*:nL1N1R40EP
In a week that the U.S. Federal Reserve broadly stuck to its"dot plot" on future interest rate moves and signaled arelatively upbeat outlook for the economy, 10-year U.S. Treasuryyields are on track to post its second biggest drop so far thisyear, further weighing on the greenback.
"The FX market itself isn't sure and its reaction torisk-off and lower bond yields across the board is to by the yenand the Swiss franc," Kit Juckes, an FX strategist at SocieteGenerale wrote in a daily note.
Against a basket of its rivals, the dollar .DXY was ontrack to fall 0.2 percent, taking its weekly losses to about 0.6 percent, its biggest drop in a month.
The Swiss franc CHF= was also the other notable winner incurrency markets this week with a 0.6 percent rise.
In other currencies, sterling GBP=D3 was relatively stablein the backdrop of an EU summit with the British currencychanging hands at $1.4107. (Reporting by Saikat Chatterjee; Additional reporting byMasayuki Kitano in SINGAPOREEditing by Keith Weir) ((saikat.chatterjee@thomsonreuters.com; +44-20-7542-1713;Reuters Messaging: saikat.chatterjee.reuters.com@reuters.net))
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