NEW YORK (Reuters) - The safe-haven yen and Swiss franc on Tuesday gained for a second straight day this week as U.S. stocks stumbled a day after a blistering rally that propelled the tech-heavy Nasdaq to an all-time high.
The yen rose to one-week highs against the dollar, while the Swiss franc climbed to its highest in more than two months versus the greenback.
Japanese investors have also sold the dollar as they positioned for the likelihood that the Federal Reserve will take steps to flatten the Treasury yield curve. The U.S. yield curve has steepened in recent sessions, as rates on the long end rose.
Except for the Nasdaq, U.S. stocks were mostly lower, as investors cautiously looked ahead to the Fed statement on monetary policy on Wednesday.
“There is the risk of a second wave of COVID infections, which I think is very large, and I don’t think the market is pricing this,” said Momtchil Pojarliev, head of currencies at BNP Asset Management in New York.
“I wouldn’t be surprised if the market goes back to this whole notion that we’re not actually out of the woods yet. But I don’t know when it’s going to happen,” he added.
In afternoon trading, the dollar fell 0.6% against the yen to 107.75 yen, after earlier touching a one-week low of 107.63 yen.
Against the Swiss franc, the dollar dropped 0.8% to 0.9503 franc, after earlier plunging to 0.9483, the lowest since mid-March.
The euro recovered early losses to trade up 0.4% at $1.1339 .
The U.S. dollar index fell 0.3% to 96.334 .
Investors are looking ahead to Wednesday’s Fed announcement following a two-day meeting. Speculation is growing that the U.S. central bank might adopt yield targets on bonds, or some other measures to anchor long-term yields.
“While we are seeing a pause in recent momentum for some foreign currencies against the greenback, we are not ready to pile into the U.S. dollar until we hear from Powell and friends,” said Wells Fargo in a research note, referring to Fed Chairman Jerome Powell.
“If the Fed stays the course on saying no to negative rates and avoids seriously opening the door to yield curve control we could see the bounce in the U.S. dollar continue.”
Also on Tuesday, commodity currencies reversed their gains against the U.S. dollar.
The Australian dollar was last down 0.8% at US$0.6964. Earlier in the Asian trading session, it rose to an 11-month high of US$0.7043. The New Zealand dollar fell 0.6% to US$0.6515, off the four-and-a-half-month high touched earlier.
Reporting by Gertrude Chavez-Dreyfuss; Additional reporting by Olga Cotaga in London; Editing by Andrea Ricci and Chizu Nomiyama