Swiss franc set for biggest single day rise in 2-1/2 years

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[August 09, 2017]  By Saikat Chatterjee

LONDON (Reuters) - Switzerland's franc on Wednesday posted its biggest single-day rise against the euro since the central bank removed its cap on the currency in January 2015.

Traders said hedge funds had cut leveraged bets against the franc, prompted in part by worries about increased U.S.-North Korea tension. The Swiss franc is a traditional safe haven.

The franc <EURCHF=> jumped 1.4 percent to 0.9611 francs per euro in early trades.

"The overnight Korean news has prompted some unwinding of the cheapening trades on the franc that has been going on for some time and though positioning is not stretched by any means, the franc's strength may have room to run," said Timothy Graf, head of macro strategy at State Street Global Markets in London.

Against the dollar, the franc <CHF=> surged 0.6 percent to 0.9688 francs, reversing a two-week losing streak.

The franc's surge against the dollar is likely to flush out some leveraged bets as some hedge funds had used the lower yielding franc as a borrowing currency to invest in others, such as euro assets <EUR=>, in the last three weeks.

North Korea said on Wednesday it is "carefully examining" plans for a missile strike on the U.S. Pacific territory of Guam, just hours after U.S. President Donald Trump told the North that any threat it presented to the United States would be met with "fire and fury"

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The new 50 Swiss Franc note is seen at a market stall after its release by the Swiss National Bank (SNB) in Bern, Switzerland April 12, 2016. REUTERS/Ruben Sprich/File Photo

"Heightened geopolitical risks overnight have seen the markets flip from risk-on to risk-off and we have to wait and see how long this move runs before adding some positions," said Viraj Patel, an FX strategist at ING in London.

The franc wasn't the only beneficiary to the risk-off sentiment sweeping markets.

German bond yields fell, gold <XAU=> and the Japanese yen <JPY=> surged and the leveraged bets on higher yielding currencies such as the Australian dollar <AUD=> took a beating.

The dollar weakened against the yen, which is often sought in times of geopolitical tension. The U.S. currency was down 0.3 percent at 109.94 yen <JPY=>, following a retreat to 109.740, its weakest since June 15.

The Australian dollar, which rose to a 19-month high near 90.00 yen late in July, was down 0.6 percent at 86.77 yen after slipping to a one-month low of 86.23 yen <AUDJPY=>.

(Additional reporting by Jemima Kelly; Reporting by Saikat Chatterjee Editing by Jeremy Gaunt.)

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