The Swiss franc surged to new all-time highs against the euro and the dollar in volatile trade on Tuesday, while the Japanese yen held firm as concerns about a global slowdown and a rout in stock markets drove investors to seek safe-haven currencies.
Investors unwound leveraged trades funded in the dollar and the yen as global stocks, as measured by the MSCI’s all-country world index fell 1 percent. It has now shed 20 percent since peaking in May, suggesting it is in a bear market and boding ill for growth-linked currencies like the Australian, New Zealand and Canadian dollars .
Markets have become deeply risk-averse in recent days after Friday’s downgrade of U.S. sovereign debt by Standard and Poor’s and persistent worries over the euro zone spooked investors and fuelled concerns about a global slowdown like the one witnessed after the collapse of Lehman Brothers in 2008.
The euro tumbled through a low of 1.0605 francs hit in Asian trade, dropping to its lowest on record at 1.0475 francs, according to EBS data. It was last at 1.0564 in volatile trade, down 1.3 percent for the day.
Analysts said the franc, which has gained 15.3 percent so far this year, could reach parity with the euro, despite the Swiss National Bank’s (SNB) recent move to cut interest rates and warnings over the franc’s strength, which have triggered concerns about intervention.
“Parity looks pretty likely for euro/Swiss as long as there is heightened risk aversion,” said Tom Levinson, currency strategist at ING. “The SNB has been threatening but they had a terrible time with intervention last time and the market is taking them on,” he added.
The SNB may be reluctant to intervene in currency markets after attempts to weaken the franc when the euro fell below 1.50 in the wake of the Lehman crisis left the central bank sitting with heavy losses.
The franc also rose to an all-time high versus the dollar on EBS of 0.7359 francs before easing a touch to 0.7407.