Fed surprise drives yen to 23-year low against Swiss franc
LONDON, Sept 19 (Reuters) - The yen slid to a 23-year low against the Swiss franc on Thursday, taking the brunt of a selloff in safe-haven currencies after the Federal Reserve surprised investors by not withdrawing monetary stimulus.
The Fed kept the size of its asset-buying programme at $85 billion a month, confounding expectations for a reduction of roughly $10 billion. With the Fed's liquidity tap on and the flood of cheap dollars uninterrupted, riskier assets and growth-linked and higher-yielding currencies rallied.
As a result, the yen which is usually the preferred liquid currency during times of financial market stress fell against major currencies, including the dollar.
But what was eye-catching was it hitting a 23-year low against another safe haven, the Swiss franc. The franc rose to 109.37 yen, up 1.8 percent on the day.
"It is more of the yen underperformance than the Swiss franc moving higher," said Adam Myers, European head of FX strategy at Credit Agricole.
"There were more flows out of the yen than the Swiss franc probably. We expect to see the yen to stay under pressure as risk markets rally and this is being reflected in cross/yen pairs."
Cross/yen pairs refers to the yen against other currencies like the euro, sterling, the Australian and New Zealand dollars. The euro rose to a 3-1/2 year high against the yen while sterling too hit a four-year high of 159.98 yen.
Analysts said the yen is likely to stay under pressure as Japanese investors look abroad for higher yields and returns.
"We expect Japanese capital outflows to pick up now that the Fed uncertainty is out of the way and that should weigh down on the yen. The market will be comfortable with the short-yen positions," said Ned Rumpeltin, head of G-10 FX strategy at Standard Chartered Bank.
While Japanese investors have been slowly venturing overseas, Swiss investors have been more circumspect. Deutsche Bank estimates that Swiss overseas investments are around 140 billion francs below their 2008 peaks. That's partly because of lingering concerns about the euro zone, the biggest investment destination for the Swiss.
The franc rose sharply in 2010 and 2011 as investors fled the risk of sovereign debt default in the euro zone. That forced the SNB to intervene and ensure the currency rose no higher than 1.20 per euro to stave off the risk of recession in the export-driven economy.
Earlier on Thursday, the Swiss National Bank said there was still a risk of upward pressure on the Swiss franc, sticking to its policy of a currency cap and ultra-low interest rates to fend off deflation. That could weaken the franc in coming months if risk appetite remains robust.
"I will be a bit sceptical chasing the Swiss franc much higher, given what the SNB has said," said Ian Gunner, portfolio manager at Altana Hard Currency Fund. "Swiss franc should not be doing too well."