Safe-haven currencies gain on worries of lingering economic pain
TOKYO,. The safe-haven Swiss franc and the yen held on to gains today while the US dollar also held firm against riskier currencies after global stock prices tumbled on renewed doubts over the prospects of a quick recovery in the global economy.
Doubts over the economy stemmed in part from the US Federal Reserve’s dire economic assessment as well as fears over new coronavirus infections, though some analysts said a stock market correction was inevitable after a rally.
The Swiss franc rose to 0.94395 per dollar, having hit a three-month high of 0.9376 yesterday.
The franc has recovered its lost ground against the euro over the past two weeks to trade at 1.0665 to the euro.
The yen also rose to ¥106.79 (RM4.27) per dollar. It hit a one-month high of 106.58 yesterday, having gained 3.1 per cent from a 2-1/2-month low hit just a week ago.
Following its two-day meeting, the Fed signalled on Wednesday it plans years of extraordinary support for the US economy, which policymakers project will shrink by 6.5 per cent in 2020, with the unemployment rate at 9.3 per cent.
Although that appears to have triggered selling in shares, analysts have said Fed officials have been cautious all along, especially compared to the bullish mood in financial markets until earlier this year.
“It is almost mudslinging to blame the stock falls on the Fed’s dour assessment. Most market players have acknowledged that the stock rally has been driven by excess liquidity and the Fed’s accommodative stance is unlikely to push stocks lower,” said Makoto Noji, chief currency strategist at SMBC Nikko Securities.
“In short, it was a correction from an overbought market, which should not last long. But what we should be careful is that the market’s fall could continue if we have more bad news from China and Europe for instance.”
The tensions between the United States and China have shown limited signs of abating while Europe is facing tough negotiations next week on its recovery fund plan.
Investors were also worried about new coronavirus infections as the world gradually reopened following shutdowns aimed at curbing the spread of the disease.
In the United States, new infections are rising slightly after five weeks of declines, according to a Reuters analysis.
Part of the increase is due to more testing, which hit a record high on June 5 of 545,690 tests in a single day but has since fallen.
The dollar held firmer against risk sensitive currencies.
The euro stood at US$1.1299, off Wednesday’s three-month high of US$1.14225.
Similarly, the British pound slipped to US$1.2582 from Wednesday’s high of US$1.2812.
The Australian dollar tumbled to US$0.6838, having fallen 2 per cent in the previous session, the biggest daily fall since the market turmoil of March.
The Mexican peso lost 3.8 per cent and dipped further in Asia to 22.85 to the dollar. ― Reuters