- The Swiss franc and the yen scaled multiple highs as investors piled into havens on fears that the spread of delta variant could derail global growth.
The franc traded at 1.0726 per euro as of 11: 02 a.m. in Tokyo on Tuesday after touching 1.0722, the strongest level since Nov. 9. The yen closed near a 10 week high of 108.88 the last day. The two haven currencies have outperformed all their major peers over the past month.
The rush for happiest havens is the latest evidence that risk sentiment and growth expectations remain fragile. U.S. 10 - year yields have dropped about 60 basis points from their peak in March while traders are boosting wagers for another round of policy easing in China as governments initiate fresh curbs to contain the spread of the delta strain.
The rising cases of delta variant has tempered somewhat the optimism that was building concerning the strength of recovery of the major economies, said Stuart Cole, head macro economist of Equiti Capital. 'This increase in risk aversion is benefiting the likes of the franc and the yen.
Global bouts of risk aversion typically drive investors into the Swiss franc, and the Swiss National Bank has battled a too-strong currency for more than a decade. Its monetary policy - consisting of a set of wage currency rates plus a pledge to demand currency market intervention if needed - is designed to help stem the franc's appreciation.
Speculators remain bullish in the franc. That could test the SNB's tolerance for a stronger currency, which has also been partly buoyed by a domestic economy that gathers momentum and improving vaccine rates.
The euro-franc pair has tracked the move down low in European real yields very closely, as the SNB has not intervened in FX markets to counter CHF appreciation trend, Morgan Stanley strategists including John Kalamaras said. 'Overall, the market appears to be under-positioned for a move in the franc if U.S. and global yields start moving higher again.
The low yields globally are supporting 'low yielders' like the yen and the franc, according to Manuel Oliveri, a currency strategist with credit Agricole.