Yen, Swiss franc up, US$ falls on US-China row, economic woes

London

THE dollar fell on Monday, after reaching its lowest since September 2018 overnight, as deteriorating US-China relations and concerns about the US economy saw investors look to the yen and Swiss franc as safe havens.

US Secretary of State Mike Pompeo said Washington and its allies must use "more creative and assertive ways" to make the Chinese Communist Party change its ways.

With domestic economic concerns trumping its role as a safe-haven currency, the dollar index fell overnight, steadied in the early hours of the morning, then continued its descent.

At 1058 GMT, the dollar index was at 93.777, down 0.6 per cent on the day.

As Covid-19 infections show no signs of slowing in the US, investors are doubtful of a quick economic recovery.

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Nearly a quarter of the global total Covid-19 deaths have been in the US, where unemployment claims unexpectedly rose last week. Some of the earlier steps to mitigate the financial impact, such as enhanced jobless benefits, are due to expire this month and Congress has yet to agree on fresh support.

The Federal Reserve meets on Tuesday and Wednesday.

It could confirm recent hints about the benefits of an average inflation target, which would allow rates to stay lower for longer.

With the dollar's role as safe haven in question, the Japanese yen and Swiss franc strengthened, suggesting that investors are seeking safety elsewhere.

Versus the dollar, the Swiss franc reached a five-year high of 0.9167 overnight.

The dollar lost 0.8 per cent against the yen, which strengthened to a four-month high of 105.265.

"Under a general dollar sell-off environment the yen is benefiting as a safe-haven currency," said Neil Jones, head of FX sales at Mizuho.

He added that month-end flows were also playing a role. "Markets are potentially looking for risk aversion currencies, and this seems to be a discretionary switch away from dollar into the yen and the Swiss franc," he said.

There was still some risk appetite, with the Aussie and Kiwi dollars up, even after a resurgence of Covid-19 infections in Asia.

The Swedish kronor strengthened to its highest since 2018 at 8.7495.

The euro continued its ascent after European Union leaders agreed to a 750 billion-euro fiscal stimulus plan last week. But European Central Bank board member Fabio Panetta warned that the danger to the eurozone economy is not over yet.

The euro hit fresh highs of US$1.1729, up 0.6 per cent on the day and at its highest since September 2018.

Mizuho's Mr Jones said the rally was due to a substantial short position on the euro being unwound.

It was weaker versus the Norwegian and Swedish currencies. REUTERS