Japanese Yen and Swiss Franc Attract Flight To Safety Bids on Virus Fears

The Japanese yen and the Swiss franc received safe haven bids on Friday as the global markets panicked on news of the Covid Omicron variant. In a thin market it also gave traders an opportunity to book profits after an extended rally in the US dollar. On the flip side commodity beneficiaries and the growth sensitive Australian dollar and Norwegian krone sold off.

Japanese Yen Reverses on Safe Haven Buying

Moves weren’t just against the dollar. Whilst the euro rose 0.97 percent to a high of US$1.1312, however fell to more than six-year lows against the resurgent Swiss franc, at SF1.0428 per euro. The yen bounced off five-year lows hit this week against the dollar and jumped almost 2 percent to a high of ¥113.09, its best day since March last year. Sterling briefly fell to a new low for this year below US$1.3278 as nerves saw bets on a BoE interest rate hike next month be pulled in.

Caution should be taken on this moves structure after Thursday’s US Thanksgiving holiday made market moves more volatile. It was a textbook flight to quality into yen and the Swiss franc mix in minimal liquidity we saw the acceleration of the unwinding of short bond positions which impacted the forex forwards.

US CFTC figures told us speculative accounts had been massively short safe-haven assets, net bearish positioning at US$1.2 billion and US$10.3 billion for the yen and Swiss franc respectively in the latest week.

The US dollar index on Friday pulled back 0.75 percent to 96.030, after reaching a 16-month high of 96.938 on Wednesday. The index is unchanged for the week. The index rose from 93.872 on Nov. 9 as investors increased bets that the US Federal Reserve will begin raising interest rates in mid-2022 to thwart stubbornly high inflation. Following the Omicron selling the CME FedWatch Tool showed the probability for a rate hike in May 2022 decreased on Friday to 36.4% from 55.3% on Wednesday, and the probability for a rate hike in June 2022 decreased to 61.8% from 82.1% on Wednesday. 

The S&P 500 index fell 2.3% Friday to 4,594 its biggest one-day percentage loss in nine months and down 2.2% decline for the week. The Dow was down 905 points, or 2.5% Friday in its worse day since October, 2020. The 10-year Treasury yield, which moves opposite price, fell to 1.48% from Wednesday’s high of 1.69%.

In the cryptocurrency market, bitcoin fell to as low as US$53,524, the lowest since Oct. 10, Ethereum dropped to US$3,917, the lowest since Oct. 28.

Spot gold rose 1.2 percent to US$1,809.55 an ounce, silver traded little changed, while platinum and palladium declined. Gold for December delivery on Friday rose US$1.20 to US$1,785.50 an ounce, down 3.6 percent weekly.

The moves came a day after the U.S. Thanksgiving holiday when thin volume likely exacerbated the moves. In what has been a very volatile week for Oil, futures collapsed over 10%. We had seen a dead cat bounce in WTI and Brent after the SPR coordinated release plans.