(Bloomberg) -- The Swiss franc and the yen scaled multi-month highs as investors piled into havens on fears that the spread of the delta variant could derail global growth.
The franc traded at 1.0726 per euro as of 11:02 a.m. in Tokyo after touching 1.0722 on Tuesday, the strongest level since Nov. 9. The yen hovered near a 10-week high of 108.88 reached the previous day. The two haven currencies have outperformed all their major peers over the past one month.
The rush for 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 the delta variant has tempered somewhat the optimism that was 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 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 negative interest rates plus a pledge to wage currency market interventions if needed -- is designed to stem the franc's appreciation.
Still, speculators remain bullish on the franc. That could test the SNB'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 “tracked the move lower in European 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 seems 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. They “simply lose rate disadvantage.”
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