Analysis-Swiss franc shines as investors scramble for safe assets

investing.com:

By Naomi Rovnick and John Revill

LONDON/ZURICH (Reuters) — The potential for the Israel-Hamas conflict to worsen and poor corporate earnings have sent investors scrambling for safety with few havens left, as high-for-longer U.S. rate expectations batter government bonds and the yen.

Enter the Swiss franc, a longstanding safe haven asset thatjust hit its highest level against the euro since 2015, standing tall as its traditional rivals lose appeal.

Disappointing financial updates from the likes of European food giant Nestle and U.S. bank Morgan Stanley have added to investors' risk-off mood. Global shares are down 1.6% this week, while Wall Street stocks lost 2% in two sessions.

«Markets are caught between a rock and a hard place, with a surge in risk aversion where bonds provide no protection,» said Florian Ielpo, head of macro at Lombard Odier Investment Managers in Geneva. «Where do you express that risk aversion when you can't express it in bonds?»

Other than U.S. dollar cash, only the Swiss franc and gold remained as options, Ielpo said.

The euro dropped to 0.9419 francs on Friday, its lowest since the Swiss National Bank scrapped the franc's peg to the euro in January 2015, down about 2.4% against the currency so far this month.

The dollar has weakened around 1% against the franc this week, and is set for its biggest weekly drop since July.

In contrast, the dollar is at its highest in nearly a year against the Japanese yen — another traditional safe haven — with 10-year Treasury yields touching 5% for the first time in 16 years draw money away from the low-yielding curency.

Traders also perceive a greater risk of currency intervention by Japanese authorities, and resulting volatility, that any Swiss action,