The euro touched a May 2020 low against the safe-haven Swiss franc on Monday, and the dollar hovered around a 16-month high as US inflation raised bets on a Federal Reserve interest rate hike.
With inflation fears rising and concerns over the COVID-19 pandemic pressuring global economic growth, the Swiss franc hit 1.0530 against the euro overnight, its highest level versus the single currency in 18 months. It was up 0.1% at 1.0535 at 1210 GMT.
Interest for the euro/Swiss franc cross has grown sharply, said Simon Harvey, senior FX market analyst at Monex Europe, “because the Swiss franc is a natural hedge against inflation.”
Supply-chain bottlenecks and soaring energy costs are slowing euro zone growth and will keep inflation high for even longer than had been thought, European Central Bank President Christine Lagarde told a hearing of the European Parliament’s committee on economic affairs on Monday. She said euro zone inflation would ease next year.
Swiss National Bank governing board member Andrea Maechler said modest Swiss inflation, at an annual rate of around 1.2%, was capping the franc’s rise. But she reiterated the SNB’s commitment to currency market interventions designed to limit, if needed, the effect that the Swiss franc’s strength has on Switzerland’s export-orientated economy.
Another safe haven, the US dollar, was not far from a 16-month high it touched on Friday after data showing a sharp jump in US consumer prices last month encouraged markets to price a first Fed rate increase by July next year.
The dollar index – which measures the currency against six peers – edged 0.1% lower at 95.038 as traders awaited clues on the Fed’s interest rate hike plans.
Investors will be watching any comments at a virtual summit between President Joe Biden and Chinese leader Xi Jinping on Monday.
Gains in the heavily euro-weighted dollar index have also been helped by a drop in the single currency, with ECB’s Lagarde continuing to push back on market bets for tighter policy.
Lagarde “reiterating the dovish outlook of policymakers” kept the euro in check, said Jane Foley, Head of FX Strategy at Rabobank London.
The euro edged 0.1% higher at $1.1452, not far from Friday’s 16-month low.
In Britain, the pound rose 0.2% to $1.3436, ahead of a data-heavy week with employment, inflation and retail sales numbers expected to provide clues about whether the Bank of England will raise rates in December, as expected by markets. On Friday, sterling touched its lowest level this year versus the dollar.