LDN - Business

Swiss franc falls against euro on Brexit relief, dollar dips on U.S. stimulus

[December 28, 2020] By Yoruk Bahceli

AMSTERDAM (Reuters) - The Swiss franc fell to its lowest in nearly seven months against the euro on Monday as the Brexit trade deal remained in focus, while the dollar dipped after U.S. President Donald Trump signed a COVID-19 aid bill, averting a government shutdown.

The Swiss franc fell 0.3% to 1.08860 against the euro, its lowest since June 8. It was unchanged against the U.S. dollar at 88.835 cents at 0903 GMT.

"What we are seeing is a continuation of the pricing out of hard Brexit risk," said Ulrich Leuchtmann, head of FX research at Commerzbank in Frankfurt.

"I think a lot of market participants saw Swissie as an alternative to the euro, (which) would have been harder affected by a hard Brexit," he said. Investors were likely to close out of such positions in the following sessions, he added.

The euro was up 0.1% $1.22370, near the 2 1/2-year high of $1.2273 touched this month.

In the United States, Trump signed into law a $2.3 trillion pandemic aid and spending package, averting a partial federal government shutdown that would have started on Tuesday.

The dollar dipped 0.3% against a basket of currencies to 90.031, its lowest in a week.

The boost to risk appetite also hurt safe-haven government bonds, with 10-year U.S. Treasury yields up 2 basis points at 0.95%.. Germany's benchmark 10-year yield was unchanged at -0.55%.

Meanwhile, Britain's sterling added 0.1% against the U.S. dollar to $1.3551 , continuing to keep in sight the $1.3625 mark it hit earlier this month for the first time since May 2018.

It neared that level on Thursday, when Britain and the EU announced the trade deal.

The pound was down 0.5% against the euro at 90.280 pence.

"Markets are likely to wait until next week though before buying (sterling) again, fearful of massive bottlenecks at the English Channel as the new rules take effect," Jeffrey Haley, senior market analyst at OANDA told clients.

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Pound and U.S. dollar bills are seen in this illustration taken January 6, 2020. REUTERS/Dado Ruvic/Illustration

While the deal came as a relief to investors, the bare-bones nature of the pact leaves Britain far more detached from the EU, analysts say, suggesting any subsequent gains will be modest and the discount that has dogged UK assets since 2016 will not vanish soon.

Brussels has made no decision yet on whether to grant Britain access to the bloc's financial market.

Mitsuo Imaizumi, chief FX strategist at Daiwa Securities in Tokyo, expects the pound and euro to decline against the dollar, reaching $1.30 and $1.15 respectively by the end of the summer.

The Australian dollar, a trade sensitive currency, inched up to 76.110 U.S. cents, toward the 2 1/2-year high of 76.390 reached this month.

Yields on 10-year Southern European bonds - deemed riskier due to their lower credit ratings - dipped 2-3 basis points.

The yuan crept up after China's central bank lifted its official guidance level to the highest in 30 months, to as high as 6.5280 against the dollar in the onshore market, but was last unchanged at 6.5408.

It was last down 0.3% in the offshore market at 6.5311.

The yen rose slightly against the dollar, up 0.1% at 103.455. .

Policymakers at Japan's central were divided on how far they should go in examining yield curve control with some calling for a comprehensive review of the framework, a summary of opinions voiced at the December rate review showed on Monday.

(Reporting by Yoruk Bahceli; additional reporting by Kevin Buckland in Tokyo; Editing by Andrew Heavens)

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