The Swiss franc rose to a record high against the euro and held close to a record versus the dollar on Tuesday as concerns about eurozone sovereign debt problems and a slowdown in the global economy boosted demand for the safe-haven currency. Fears of intervention capped gains in the safe-haven yen, however, as the currency's strength drew warnings from Japanese officials of possible action to stem its rise and nudged the Bank of Japan closer to a further easing in policy.
Still, the yen advanced against the euro as worries about the eurozone debt crisis spreading to larger countries despite last month's bailout deal for Greece propelled Italian and Spanish bond yields to 14-year highs. The euro fell 1.5 percent against the Swiss franc to a record low of 1.0985 francs on the EBS trading platform, taking it through reported significant option barriers at 1.1000 before it recovered to trade at 1.1074 francs.
Analysts said the franc, as the safe haven of choice, was poised to set further record highs, with the yen and - to a lesser extent - the dollar also benefiting. They said very low liquidity was exacerbating moves, though traders said euro demand from sovereigns looking to diversify their dollar holdings helped to limit falls in the single currency. "Liquidity is atrocious and is causing some exaggerated moves, especially in the Swiss franc," said Sebastien Galy, currency strategist at Societe Generale.
The euro was down 0.5 percent at $1.4175, having hit $1.41576, its weakest since July 21, with analysts saying investors were concerned a global slowdown could hit indebted eurozone peripheral countries badly. Data on Monday showing US manufacturing grew at its slowest pace in two years in July heightened concerns about the global economic outlook as it followed weak surveys out of the eurozone and the UK. The dollar was down 0.5 percent at 0.7790 Swiss francs, close to an all-time low around 0.7730 hit on Monday. With support levels few and far between, chartists at Barclays highlighted a 33-year trendline, which comes in around 0.7580 franc. The Swiss franc also outperformed against the yen, rising to its highest in nearly three years.
The dollar was marginally higher at 77.43 yen, off a four-month low of 76.29 yen hit on Monday on EBS - which was only just shy of its record trough of 76.25 hit after the March 11 earthquake. One-month implied volatility was around 10.90 percent versus 10.30 on Monday, though well below a level around 20 seen in March when co-ordinated G7 intervention drove the yen lower. Elsewhere, the Australian dollar lost 1 percent to $1.0875 after the Reserve Bank of Australia kept interest rates at 4.25 percent, disappointing some in the market who were speculating about a possible hike.
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