Standard Chartered Plc lowered its forecasts for the U.S. dollar versus the yen and the Swiss franc, citing a “powerful rally” in Treasuries that narrowed the premium offered by U.S. rates.
The extra yield investors get from 10-year Treasuries over similar Japanese bonds dropped to the lowest since May 2009 after a U.S. report yesterday showed inflation remains muted and Group of 20 nations leaders agreed over the weekend on a target for cutting budget deficits. The Swiss franc yesterday climbed to a record versus the euro as a member of the nation’s central bank said deflationary tensions “practically disappeared.”
“There’s not a powerful reason anymore to move out of holding long JGBs into long-term Treasuries,” said Robert Minikin, a senior foreign-exchange strategist in Hong Kong at Standard Chartered. “The appetite for the Swiss National Bank to intervene to weaken the Swiss franc has clearly been substantially diluted and that is supportive for the franc.”
The dollar will advance to 93.5 yen in the third quarter and 95 yen by year-end, the bank said today, trimming a previous estimate for the U.S. currency to reach 98 yen and 100 yen respectively. The greenback will buy 1.19 francs by Sept. 30 and 1.17 by December, rather than 1.25 and 1.23 as earlier forecast, according to the report.
The U.S. currency fell 0.5 percent to 88.94 yen as of 12:46 p.m. in Tokyo, compared with yesterday in New York, and traded at 1.0874 Swiss francs.
Demand for the yen and Swiss franc has been bolstered as measures of market volatility, such as the VIX index, remain elevated, Minikin said. The Standard & Poor’s 500 Index is poised for an 8.1 percent retreat since March 31, snapping a four-quarter streak of gains.
“Market conditions remain very uncertain and jittery and that’s keeping model-based buyers of high-yield crosses like Aussie-yen on the sidelines,” he said.