NEW YORK : News of a coronavirus variant potentially resistant to current vaccines sent investors dashing for the safety of the Japanese yen and the Swiss franc on Friday, and traders also took profits after an extended rally in the U.S. dollar.
The gains in the yen and the franc came at the expense of the growth-sensitive Australian dollar and Norwegian crown, though thinner volumes after Thursday's U.S. Thanksgiving holiday made market moves more volatile.
The United States will restrict travel from South Africa - where the new mutation was discovered - and neighboring countries beginning Monday, a senior Biden administration official said.
The World Health Organization (WHO) said it was designating the variant, named omicron, as being "of concern," a label applied only to four variants to date. It could take weeks for scientists to fully understand the variant's mutations and potential dangers.
"If we’re looking at something like this where we have new mutations on mutations of a spike protein it almost feels like the initial working assumption for most market participants is that this is a new phase of the pandemic," said Bipan Rai, North American head of FX strategy at CIBC Capital Markets in Toronto.
"New lockdowns and restrictions will maybe be put in place, and it certainly feels like we're going to need a new vaccine as well," he added.
One of the main gainers was the yen, which bounced off five-year lows hit this week against the greenback, and jumped almost 2per cent to a high of 113.09, its best day since March 2020.
The euro rose 0.97per cent to a high of US$1.1312, though it fell to more than six-year lows against the resurgent Swiss franc, at 1.0428 francs per euro.
"This is a textbook flight to quality into yen and the Swiss franc on the new virus strain with the thin liquidity also a factor, which may accelerate the unwinding of short bond positions," Kenneth Broux, a strategist at Societe Generale in London, said.
Speculative accounts had been massively short safe-haven assets, with U.S. CFTC figures showing net bearish positioning at US$1.2 billion and US$10.3 billion for the yen and Swiss franc, respectively, in the latest week.
The dollar index dipped 0.75per cent to 96.030, after reaching a 16-month high of 96.938 on Wednesday. It has jumped from 93.872 on Nov. 9 as investors increased bets that the Federal Reserve will begin raising interest rates in mid-2022 to thwart stubbornly high inflation.
CIBC’s Rai said Friday's decline in the greenback was more likely due to investors taking profits after the currency’s recent gains, and not a change in the dollar’s safe-haven status.
"The near-term move is mostly about extended positioning and closing those out. Once that becomes a little bit more finely balanced and if we are in a risk-off scenario, then I would expect the dollar to continue to outperform," he said.
Sterling briefly slipped to a new 2021 low below US$1.3278 as the jitters prompted some to scale back bets on an interest rate hike in December.
In the crypto currency market bitcoin fell as low as US$53,524, the lowest since Oct. 10, while ethereum dropped to US$3,917, the lowest since Oct. 28.
Graphic: World FX rates https://graphics.reuters.com/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html
Currency bid prices at 3:22PM (2022 GMT)
Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid
Dollar index 96.0110 96.7760 -0.77per cent 6.701per cent +96.7870 +95.9850
Euro/Dollar US$1.1316 US$1.1206 +1.02per cent -7.35per cent +US$1.1323 +US$1.1206
Dollar/Yen 112.8300 115.3700 -1.84per cent +9.64per cent +115.3150 +113.0900
Euro/Yen 128.08 129.29 -0.94per cent +0.91per cent +129.3300 +127.8100
Dollar/Swiss 0.9218 0.9356 -1.37per cent +4.31per cent +0.9359 +0.9216
Sterling/Dollar US$1.3330 US$1.3318 +0.09per cent -2.43per cent +US$1.3349 +US$1.3278
Dollar/Canadian 1.2777 1.2646 +1.08per cent +0.38per cent +1.2799 +1.2650
Aussie/Dollar US$0.7113 US$0.7186 -0.95per cent -7.48per cent +US$0.7190 +US$0.7113
Euro/Swiss 1.0433 1.0485 -0.50per cent -3.46per cent +1.0490 +1.0429
Euro/Sterling 0.8484 0.8411 +0.87per cent -5.07per cent +0.8495 +0.8413
NZ US$0.6808 US$0.6854 -0.63per cent -5.17per cent +US$0.6856 +US$0.6805
Dollar/Norway 8.9800 8.9530 +1.17per cent +5.49per cent +9.1010 +8.9850
Euro/Norway 10.2380 10.0493 +1.88per cent -2.19per cent +10.2941 +10.0486
Dollar/Sweden 9.0852 9.0851 +1.23per cent +10.91per cent +9.1830 +9.0661
Euro/Sweden 10.3107 10.1855 +1.23per cent +2.33per cent +10.3365 +10.1865
(Additional reporting by Saikat Chatterjee and Sujata Rao in London; editing by Barbara Lewis and Leslie Adler)