Markets

Swiss franc near record highs amid slump fears

LONDON : The Swiss franc hovered near all-time highs against the euro on Tuesday as fears of a global recession kept saf
Published August 9, 2011

 LONDON: The Swiss franc hovered near all-time highs against the euro on Tuesday as fears of a global recession kept safe-haven currencies in high demand and drove further declines on already under-fire stock markets.

The low-yielding franc and the yen were boosted in Asian trading, while the dollar strengthened versus commodity currencies as Wall Street's biggest selloff since December 2008 prompted a massive flight to safety.

A turnaround in stocks later in the Asian session saw the franc and the yen back off from their highs, but European stocks fell into negative territory again and analysts expected more liquid currencies to stay in favour in the predominantly risk-off environment.

"Liquidity matters in the current environment so the Swiss franc, the yen, dollar and to some extent the euro will remain well supported, They are large and liquid and don't have the stretched positioning associated with carry currencies such as the Aussie, kiwi and the Nordics."

Markets have become deeply risk-averse in recent days after Friday's S&P downgrade to US sovereign debt and persistent worries over the euro zone spooked investors and fuelled concerns a global recession could be around the corner.

The euro traded with gains of around 0.2 percent against the franc at 1.0732 francs after falling to a record low of 1.0605 early in the Asian session.

The dollar was little changed at 0.7544 Swiss francs , edging higher after flirting with an all-time low of 0.7480 reached the previous day.

Options markets showed implied volatility in the Swiss franc -- a measure of the market's expectations of future movements in the currency -- at record levels of over 20 percent in the one-month after surpassing levels seen at the peak of the Lehman crisis on Monday.

"The yen and the Swiss franc are drawing extremely strong demand as plunges in global shares are having a major psychological impact, forcing investors to refrain from holding risky assets," said Teppei Ino, a currency analyst at Bank of Tokyo-Mitsubishi UFJ.

At one point the dollar drifted to 77.051 , below levels where Japanese authorities intervened heavily on Aug. 4. and not far off the record low of 76.25 yen reached in mid-March. It was last down 0.5 percent at 77.36 yen.

The dollar briefly spiked against the yen in Asia, fuelling speculation that Tokyo authorities had stepped into the market to follow up last week's massive yen selling intervention, but the dollar's subsequent decline eased market jitters.

"The market is wary of buying the yen too aggressively, particularly after intervention last week. It will be a bit difficult to sell dollar/yen from current levels," Bank of Tokyo-Mitsubishi's Ino said.

Japanese Finance Minister Yoshihiko Noda said on Tuesday he is watching markets with a sense of urgency after share prices tumbled.

EURO DRIFTS, AUSSIE BELOW PARITY

Despite trading up 0.4 percent at $1.4243 the euro stayed below its recent highs on the dollar, having touched around $1.4400 on Monday.

The euro gained some support after European Central Bank President Jean-Claude Trichet said on Tuesday the ECB was actively buying government bonds.

Commodity currencies gained some respite after sharp falls in the Asian session.

At one point the Australian dollar fell below parity against the US dollar, sliding to $0.9927, its lowest in about five months, but later recovered to $1.0146.

The Aussie has lost about 10 cents from a 29-year peak of $1.1081 set just two weeks ago.

The market's next focus is squarely on Federal Reserve policymakers due to meet on Tuesday.

There has been talk that the Fed will discuss options for more measures to help the economy, but the common view on Wall Street is that it will refrain from any fresh stimulus after having completed a $600 billion bond-buying programme dubbed QE2 in June.

Still, given the magnitude of the recent declines on Wall Street, the Fed will be under intense pressure to offer some sort of assistance, if only verbal.

 

Copyright Reuters, 2011

 

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