Franc rises as snb refrains from weakening measures; euro falls
The franc rose versus all its major peers as the Swiss National Bank refrained from announcing any new steps to curb its gains, after intervening or referring to the currency’s strength on the first three Wednesdays of August.
Switzerland’s currency rallied from near a five-week low versus the dollar and extended gains versus the euro this year to 7.1 percent, hurting Swiss exports’ competitiveness. The euro weakened versus 15 of 16 major counterparts as data showed euro- area unemployment held at 10 percent for another month. The yen headed for a third monthly gain versus the dollar as a report said U.S. company payrolls increased less than forecast.
“People were speculating that maybe they were expecting some sort of announcement by the SNB, and the fact that they didn’t come out helped the short dollar-Swiss trade,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York. Short positions are bets a currency will fall. “It’s really a more anti-dollar trade than anything else, and Swissie is the prime beneficiary of that.”
The franc climbed 1.7 percent to 1.1645 per euro at 8:43 a.m. in New York, snapping three days of declines. Switzerland’s currency advanced 1.6 percent to 80.69 centimes per dollar. The yen strengthened 0.2 percent to 110.56 per euro, and gained 0.2 percent to 76.59 versus dollar.
The euro was little changed at $1.4436, from $1.4441 yesterday. It’s up 0.3 percent versus the dollar this month.
Companies in the U.S. added 91,000 workers to payrolls in August, according to data from ADP Employer Services. The median forecast of economists surveyed by Bloomberg News called for an advance of 100,000. The government reports jobs data Sept. 2.
Three Wednesdays
The SNB declined to comment on currency intervention when contacted by Bloomberg News today. Authorities have announced measures to halt gains in the franc or released statements calling it “overvalued” on three Wednesdays this month. The currency has surged 11 percent in the past year against a basket of its nine major peers, according to Bloomberg Correlation- Weighted Currency Indexes.
The Swiss government said on Aug. 3 it welcomed measures to curb franc gains, while the central bank boosted supplies of the currency on Aug. 10 to erode its value. Finance Minister Eveline Widmer-Schlumpf also said Aug. 17 that she supported “any” measure deemed appropriate by the central bank, including a possible currency peg.
There is “always a chance the SNB might offer further policy, but they are probably content with euro-Swiss at its current levels in the short term,” Chris Walker, a currency strategist at UBS AG in London, wrote in an e-mail.
Time will show whether the SNB’s foreign currency purchases over the past two years to restrain the franc have been successful, governing board member Thomas Jordan wrote in a paper published on the Federal Reserve Bank of Boston’s website.
‘Happy’ With Franc
In June 2010, the SNB had suspended 15 months of currency interventions that led to a $21 billion record loss last year.
“They’re probably happy with where the franc is for now,” said Elizabeth Gregory, a market strategist at Swissquote Bank SA in Geneva. She forecast the currency will strengthen to an average of 75 centimes per dollar and about 1.10 to the euro over the next year.
The euro weakened versus most major peers as data showed euro-region unemployment held at 10 percent in July from the previous month, when adjusted for seasonal swings, the European Union’s statistics office in Luxembourg said in a statement today. At 21.2 percent, Spain had the highest jobless rate.
European Inflation
European inflation stayed above target in August, even as the region’s economy shows signs of faltering. Inflation remained at 2.5 percent, the statistics office said in an initial estimate.
That was in line with the median of 35 economists’ estimates in a Bloomberg survey. The European Central Bank aims to keep inflation just below 2 percent over the medium term.
ECB President Jean-Claude Trichet said Aug. 29 the bank is reviewing its assessment of inflation risks as economic growth in the region slows. The comments prompted bets that the central bank will cease raising its benchmark interest rate, following two increases this year to 1.5 percent.
A Credit Suisse Group AG index showed traders are betting the ECB will cut its benchmark rate by 14 basis points, or 0.14 percentage point, in the next 12 months. That compares with a 25-basis-point increase projected on Aug. 1.
The euro may weaken to $1.33 over the next 12 months, according to Royal Bank of Canada’s RBC Capital Markets unit.
‘Falling Apart’
“Investors that think the world is falling apart and are worried about capital preservation still view the yen and the franc as safe havens,” said Elsa Lignos, an RBC currency strategist in London. “We like the yen. It just seems a little less overstretched than the Swissie.”
Concern that the global economy is slowing was reinforced by minutes of the Federal Reserve’s Aug. 9 meeting released yesterday, showing policy makers favored “more substantial” measures to boost the U.S. economy than the current pledge to hold rates at a record low for the next two years.
New Zealand’s dollar was poised for its biggest monthly decline in a year versus the yen after a survey by ANZ National Bank Ltd. showed business confidence declined in August.
A net 34.4 percent of companies surveyed in New Zealand expect the economy will improve over the next 12 months, down from 47.6 percent in July, according to the ANZ survey released today. The net figure subtracts the number of pessimists from the number of optimists.
New Zealand’s dollar traded at 65.42 yen, compared with 65.46 yesterday, and has lost 3.2 percent this month. It was at 85.40 U.S. cents, from 85.31 cents, set for a 2.9 percent slide since the end of July.