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"Some investors had gone very short on risk last week on the
geopolitical events and there is some short covering," Neil
Jones, head of FX sales at Mizuho Bank in London, said.
The franc fell 0.8 percent against the U.S. dollar <CHF=> to
0.9694 francs, its biggest drop since July 27 according to
Thomson Reuters data. It gained more than 1 percent last week on
escalating tensions between North Korea and the United States.
World stocks also showed signs of relief after fears of a
nuclear stand-off drove them to the biggest weekly losses of
2017 last week, while volatility ebbed.
Chinese President Xi Jinping called on Saturday for a peaceful
resolution to the North Korean nuclear issue, and in a call with
U.S. President Donald Trump urged all sides to avoid words or
action that raise tensions.
With Japanese second-quarter growth expanding 1 percent
quarter-on-quarter, fuelled by rising consumption and capital
expenditure, investors stepped in to buy risky assets after
tensions over North Korea.
Meanwhile, the dollar edged higher against a trade-weighted
basket of currencies after posting its biggest weekly drop in
three weeks as expectations of U.S. rate increases dwindled
further after weak inflation data.
Renewed risk appetite also encouraged investors to borrow in
currencies such as the dollar and the franc <CHF=> and invest in
the euro <EUR=EBS>.
"Despite some near-term headwinds for the euro after the recent
rise, it is set to rise against the dollar because of the
relatively favourable economic outlook," Rob Carnell, head of
research at ING in Singapore, said.
The dollar was trading at 93.30, 0.3 percent higher from
Friday's session when it came under pressure after
softer-than-expected U.S. inflation data for July dampened
expectations for another Federal Reserve interest rate hike this
year.
(For a graphic on 'U.S. rate expectations' click http://reut.rs/2fEZZDf)
The euro edged 0.2 percent lower to $1.17950 <EUR=EBS> and was
below a 2-1/2 year high of 1.1910 hit earlier this month.
(Reporting by Saikat Chatterjee)
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