Cautious tone drives yen and Swiss franc higher

The yen and Swiss franc climbed on Friday as investors, worried that Britain could vote to leave the European Union at a referendum in less than two weeks’ time, ditched riskier assets in a flight to safety.

As the yields on Japanese and German 10-year bonds, both traditional safe havens, hit record lows, the yen strengthened 0.4 percent to 106.68 against the dollar, not far from a 1-1/2-year high of 105.55 yen touched last month.

The Swiss franc also firmed 0.3 percent to 1.0888 per euro, just shy of an eight-week high of 1.0886 touched the previous day.

The dollar index was on track for a modest weekly gain of 0.3 percent, having last week shed 2 percent as a much worse than expected U.S. jobs report poured cold water on the view that the U.S. Federal Reserve could raise interest rates in June or July.

The Fed will kick off its two-day policy meeting next Tuesday, while the Bank of Japan will start a two-day policy meeting on Wednesday.

In London, Bank of New York Mellon currency strategist Neil Mellor said Brexit uncertainty could limit central bank action, and therefore market action, until Britain’s June 23 referendum on EU membership had passed.

“We’ve got a market that is about to batten down the hatches – we’re heading into a period of a lot of uncertainty,” Mellor said. “A lot of central banks are putting off decisions because of the referendum, and I think next week could therefore be a bit of a wash-out.”

BlackRock, the world’s largest asset manager, said financial markets may be under-pricing the risk of Britain leaving the EU.

The euro was flat at $1.1319, about 3 U.S. cents down from a nine-month high of $1.1616 hit a month ago.

“We believe we are starting to see the early signs of defensive positioning (on the euro) ahead of the June 23rd Brexit referendum,” ING currency strategist Chris Turner wrote in a note to clients.

“The euro is clearly under-performing the typical safe havens of the yen plus the intra-European safe havens of the Swiss franc, the Czech crown, and the Danish crown.”

For the week, the best-performing currency was the New Zealand dollar, which staged a broad rally after the Reserve Bank of New Zealand on Thursday skipped a chance to cut interest rates and appeared reluctant to cut again.

The kiwi powered to a one-year high just shy of 71.5 U.S. cents and was last at $0.7097, up more than 2 percent for the week, though down 0.1 percent on the day.

 

Source: Reuters

 

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