Yen, Swiss franc fall on optimism about central bank action

Tyrone Siu | Reuters

The safe-haven yen and Swiss franc retreated against the dollar on Monday, as risk sentiment gradually improved after a week of turmoil on hopes that major central banks would look to launch fresh stimulus measures to lift their sluggish economies.

The Japanese currency fell for a third straight session versus the greenback, while the Swiss unit slid to a two-week low against the dollar.

Optimism about government action to avert recession concerns in the United States, which was triggered U.S. Federal Reserve's symposium in Jackson Hole, Wyoming, toward the end of the week, where central bankers could announce key measures.

China also unveiled interest rate reforms expected to lower corporate borrowing costs, which helped lift the market's mood, while the prospect of Germany's coalition government ditching its balanced budget rule to take on new debt and launch stimulus steps also boosted risk appetite.

"We think the more accommodative central bank backdrop should help insulate the downside in risk markets," said Mazen Issa, senior FX strategist at TD Securities in New York. "With markets fixated on the (Jackson Hole) symposium later this week and little data to deter focus, we are biased to see an extension of (last) Friday's relief rally in risk extend in the coming days, barring another Trump Tweet-bomb," he added, referring to U.S. President Donald Trump's penchant for announcing policy or making market-moving comments on Twitter.

In morning trading, the dollar rose 0.1% against the yen to 106.51 yen, helping push the dollar index trade higher on the day to 98.239. The euro was up versus the greenback at $1.1101, after falling 1% last week, its biggest weekly drop since early July.

Against the Swiss franc, the dollar climbed 0.2% to 0.9801 franc. Sight deposits at the Swiss National Bank posted another big weekly rise, indicating more intervention from policymakers.


Investor optimism is also likely to be capped before a speech by Fed Chairman Jerome Powell later this week at the Jackson Hole conference.

Market strategists believe his comments will be aimed at reassuring nervous markets that the Fed will remain in an easing stance and set the stage for more rate cuts after a quarter-percentage-point rate cut in July.

"Powell's speech will set the stage for, at the minimum, a 25 basis-points-rate cut at the September meeting, stressing that quantitative tightening is over," said Elsa Lignos, global head of FX strategy at RBC Capital Markets.

Money markets are pricing in a cumulative 67 basis points of rate cuts from the Fed by the end of the year.