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Yen, franc surge as new virus variant

Investors fled to the safety of the Japanese yen following the discovery of a new coronavirus variant that may be resistant to current vaccines, and the Swiss franc strengthened against the growth-sensitive Australian dollar and Norwegian crown on Friday.

Because of low overnight volumes in the US due to the Thanksgiving holiday, market movements became more volatile as traders dumped long dollar positions and covered shorts in the yen.

Scientists believe it has an unusual combination of mutations that allow it to evade immune responses and spread more quickly. The South African rand fell more than 2% against the dollar, reaching its lowest level since November last year due to the news.

He went on to say that the euro, as another low-yielding currency, was less vulnerable than cyclical peers like the Australian dollar and that positioning data indicated that the euro, too, had been oversold. One potential risk is that hawkish central banks believe this variant will jeopardize tightening plans. In that regard, the dollar may be more vulnerable than the euro, as the Fed is already talking about raising interest rates next year, “Pesole elaborated.

Markets had priced in one rate hike from the European Central Bank by the end of 2022. However, the Federal Reserve should raise rates three times next year.

Currencies

The Norwegian crown fell 1.2 percent to its lowest level since last August as oil prices fell. It lost nearly 1.5 percent against the euro. The dollar index =USD rose due to gains in the yen, franc, and euro. It compares the US dollar to those and three other currencies and is down from Wednesday’s high of 96.938, its highest in nearly 17 months. It was the last trading at 96.45, a 0.3 percent decrease.

Britain canceled flights to several countries, citing scientists’ assessment that the new variant was the most significant yet discovered. The yen fell to five-year lows against the dollar earlier this week. However, it jumped 1.3 percent to a high of 113.6. The euro has dropped to nearly six-and-a-half-year lows against the Swiss franc, trading at 1.044 francs per euro.

Sterling fell to a new 2021 low of less than $1.33.

It is a textbook flight to quality into yen and Swiss francs on the new virus strain. Thin liquidity is also playing a role in hastening the unwinding of short bond positions.

The latest CFTC figures show net bearish positioning in the yen and Swiss franc at $1.2 billion and $10.3 billion, respectively. According to the data, gold, which rose 1% on Friday, had a short position worth more than $2 billion. It’s not surprising that the yen has grown the most.

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