Wednesday, 14 August 2013

Swiss Franc Weakens as Euro-Area Economy Expands; Pound Rises

By Neal Armstrong - Aug 14, 2013 5:43 AM PT
The Swiss franc slid to the weakest in a month against the euro after a report showed the 17-nation region pulled out of recession last quarter, damping demand for the safety of the Swiss currency.
The Bloomberg U.S. Dollar Index fell from a one-week high as wholesale prices unexpectedly were little changed in July. The franc dropped versus all its 16 major counterparts after German and French gross domestic product also exceeded analysts forecasts. The pound advanced for a fourth day against the euro after a report showed U.K. jobless claims dropped more in July than economists forecast. New Zealand’s dollar strengthened by the most in a week after retail sales jumped.
Dollar Holds Gains as Economic Recovery Signs Boost Taper Bets The dollar has risen 4.1 percent in the past six months, the biggest gain among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. Photographer: Scott Eells/Bloomberg
Aug. 5 (Bloomberg) -- Greg Gibbs, a foreign exchange strategist at Royal Bank of Scotland Group Plc, talks about the outlook for global currencies. He speaks from Singapore with Zeb Eckert on Bloomberg Television's "First Up." (Source: Bloomberg)
“We definitely have a bias for a weaker franc,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S (DANSKE) in Copenhagen. “Given the recovery we are seeing in European economic data, this removes one of the big tail risks that has been holding back risk sentiment. If some of the money that has flowed into the Swiss economy reverses, it should add pressure to the franc.”
The franc dropped 0.3 percent to 1.24083 per euro as of 8:40 a.m. in New York after depreciating to 1.24269, the weakest level since July 11. Switzerland’s currency fell for a fourth day against the dollar, sliding 0.3 percent to 93.58 centimes per dollar.
The euro fell 0.1 percent to $1.3256 and dropped 0.1 percent to 130.07 yen. The yen gained 0.1 percent to 98.11 per dollar.

Growth Returns

GDP in the 17-nation euro area expanded 0.3 percent in the second quarter after shrinking 0.3 percent in the previous three months, the European Union’s statistics office in Luxembourg said. German GDP increased 0.7 percent, more than the 0.6 percent gain forecast by economists, while France’s expanded 0.5 percent following two quarters of contraction.
Investors should sell the franc with a target of 1.35 per euro by the middle of 2014, according to Societe Generale SA.
“The franc was a great beneficiary of the euro crisis, and tumbled to almost parity with the euro in August 2011,” Alvin Tan, a director of foreign-exchange strategies in London, wrote in a note sent to clients. “We would expect the franc to depreciate faster from here to a further tightening of European risk premia.”
The franc has slumped 1.7 percent in the past week, the worst performer after the yen of 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 0.6 percent, while the dollar is little changed.

Pound Gains

The pound advanced versus 15 of its 16 major counterparts as a separate report showed Britain’s unemployment rate remained at 7.8 percent in the second quarter amid signs that the labor market is improving.
The Bank of England’s Monetary Policy Committee voted 8-1 to link the outlook for its benchmark interest rate to unemployment, according to the minutes released today of its July 31-Aug. 1 meeting.
“Unemployment is going to continue to trend lower in the months ahead and either the MPC is going to have to find a way to ignore that or they’ll be raising interest rates before 2016,” said Kit Juckes, global strategist at Societe Generale SA in London. “That prospect is probably going to help sterling for a little longer.”
The pound gained 0.5 percent to 85.45 pence per euro after appreciating to 85.35 pence yesterday, the strongest level since July 4. The U.K. currency rose 0.4 percent to $1.5512.
New Zealand’s dollar strengthened for the first time in three days versus the U.S. currency after retail sales increased 1.7 percent, the biggest gain since 2006.
Traders see a 97 percent chance the Reserve Bank of New Zealand will raise interest rates by at least a quarter percentage point by its April meeting from the current record-low 2.5 percent, according to data compiled by Bloomberg on overnight-index swaps.
The kiwi appreciated 0.9 percent to 80.33 U.S. cents after adding as much as 1 percent, the biggest gain since Aug. 7.

Dollar Index

The dollar weakened as the steady reading in the U.S. producer price index followed a 0.8 percent gain in June, a Labor Department report showed today in Washington. The median estimate in a Bloomberg survey of 73 economists projected a 0.3 percent rise. The so-called core measure, which excludes volatile food and fuel, climbed less than forecast.
The Bloomberg U.S. Dollar Index dropped 0.1 percent to 1,025.15 after climbing to 1,027.29, the highest level since Aug. 6.
Sixty-five percent of economists surveyed by Bloomberg said Fed Chairman Ben S. Bernankewill probably reduce the central bank’s $85 billion in monthly bond purchases in September. The Federal Open Market Committee’s first step will probably be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13.
To contact the reporter on this story: Neal Armstrong in London at
To contact the editor responsible for this story: Nicholas Reynolds at