The Swiss franc rallied to its highest level against the Euro this year while the yen climbed back into its strongest level since May, underscoring persistent demand for havens as the spread of Covid - 19 delta variant threatens global growth.
The Swiss currency has gained to 1.0722 per euro, the strongest level since November. This also rallied against the dollar for a seventh session of its longest streak since April. The yen, meanwhile, advanced to 108.88, its strongest rate since May.
Demand for the havens - which are the two strongest performing major currencies over the last month - is the latest evidence that risk sentiment and growth expectations remain fragile, which could delay central banks' exits from ultra-accommodative policies. Recent signs of caution have appeared across traded markets. The yields of U.S. securities fell for 10 year notes last month by the most since March 2020. Meanwhile, traders in China are boosting bets on a second round of policy easing.
'The rising cases of the delta variant have somewhat tempered the optimism building regarding the strength of recovery of the major economies, said Stuart Cole, head macro economist at Equiti Capital. 'This rise in risk aversion is benefiting the likes of the franc and the yen.
Concerns about declining commodity demand pushed resource-based currencies lower with the Canadian dollar falling the most in two weeks.
Global bouts of risk aversion typically drive investors into the Swiss franc, and the SNB has battled a too-strong currency for more than a decade. Its monetary policy - consisting of wage interest rates plus a pledge to stimulate the currency markets if needed - is designed to recover the franc's appreciation.
However, speculators remain bullish on the franc. That could test the Swiss National Bank's tolerance for a stronger currency, which has also been partly buoyed by a domestic economy that's gathering momentum and improving vaccine rates.
The euro-franc pair has tracking the move in Canadian real yields very closely, as the SNB has not intervened in FX markets to counter the CHF appreciation trend, Morgan Stanley strategists including John Kalamaras said. 'Overall, the market looks under-positioned for a move lower in the franc if U.S. and global yields start moving higher again.
The drop in yields globally are supporting 'low yielders' like the yen and the franc, according to Manuel Oliveri, a currency strategist at Credit Agricole.