JPY and CHF amongst strongest of the major currencies - BBH

The yen and the Swiss franc were the strongest of the major currencies, appreciating 1.5% and 1.2% respectively against the US dollar in the previous week, notes Marc Chandler, Global Head of Currency Strategy at BBH. 

Key Quotes

“Although the dollar remained on the defensive, the fact that Swiss franc weakened against the euro ahead of the weekend also suggests some normalization of the political tensions.  The euro also recovered against the yen ahead of the weekend.”

“It is worth looking closer at the safe haven conventional narrative.  We do not think that investors bought yen or the Swiss franc like they bought gold, for example.  There is an important difference between buying to taken on exposure and buying that is meant to cover previously sold positions.  The Swiss franc and yen were used as funding currencies, to finance the purchase of other assets.  What we have witnessed is the unwinding of some of these positions.”

“Speculators in the futures market covered nearly 10% of its gross short yen position (~13k contracts) in CFTC reporting week ending August 8.   Speculators added to 3k contracts to the gross long position.  Foreigners have not been particularly large investors in Japanese bonds or stocks in recent weeks.  The four-week moving average of both is declining.  On the other hand, through August 4, Japanese investors had the strongest three-week buying spree of foreign bonds since July 2016.”

“The dollar fell to JPY108.75 before the weekend, a four-month low, but managed to close back above JPY109.00.  It finished marginally lower to extend the streak to four losing sessions and is the fourth weekly loss in the last five.  A move above JPY109.40 is needed to stabilize the tone, while a move above JPY110.20 would reinforce lower end of the range.  The US rate premium is not particularly attractive at 213 bp at the 10-year mark.  It is below the 50-day average (218 bp) and 100-day average (222 bp).  At 140 bp, the two-year differential is the lowest in three months.  Nevertheless, for Japanese investors who buy US bonds on an unhedged basis, and believe that lower end of the dollar's range will hold, may still find Treasuries attractive.”