Yen and Swiss franc gain as Covid variant dents risk appetite

New York

NEWS of a coronavirus variant potentially resistant to current vaccines sent investors dashing for the safety of the Japanese yen and the Swiss franc on Friday, and traders also took profits after an extended rally in the US dollar.

The gains in the yen and the franc came at the expense of the growth-sensitive Australian dollar and Norwegian kroner, though thinner volumes after Thursday's US Thanksgiving holiday made market moves more volatile.

The United States will restrict travel from South Africa - where the new mutation was discovered - and neighbouring countries beginning Monday, a senior Biden administration official said.

One of the main gainers was the yen, which bounced off 5-year lows hit this week against the greenback, and jumped almost 2 per cent to a high of 113.09, its best day since March 2020.

The euro rose 0.9 per cent to a high of US$1.1312, though it fell to more than 6-year lows against the resurgent Swiss franc, at 1.0428 francs per euro.

"This is a textbook flight to quality into yen and the Swiss franc on the new virus strain with the thin liquidity also a factor, which may accelerate the unwinding of short bond positions," Kenneth Broux, a strategist at Societe Generale in London, said.

The dollar index dipped 0.75 per cent to 96.030, after reaching a 16-month high of 96.938 on Wednesday. It has jumped from 93.872 on Nov 9 as investors increased bets that the Federal Reserve will begin raising interest rates in mid-2022 to thwart stubbornly high inflation.

A forex player said that Friday's decline in the greenback was more likely due to investors taking profits after the currency's recent gains, and not a change in the dollar's safe-haven status.

Sterling briefly slipped to a new 2021 low below US$1.3278 as the jitters prompted some to scale back bets on an interest rate hike in December. REUTERS