Yen Has Biggest Weekly Advance Versus Euro Since July; Swiss Franc Tumbles

The yen had the biggest weekly gain versus the euro in a month as lower-than-forecast economic data fueled concern Europe’s debt crisis is weighing on growth, damping appetite for higher-risk assets.

The dollar erased a loss versus the euro after an index of U.S. consumer confidence fell to the lowest level since 1980. The Swiss franc dropped versus the 17-nation currency for a second day after reaching a record high on Aug. 9. Industrial output fell in Europe, Greece’s economy contracted and the French economy stalled. Canada’s dollar tumbled.

“It’s been a week of very volatile foreign-exchange moves, and I don’t think we’re out of the woods,” said Vassili Serebriakov, a currency strategist at Wells Fargo & Co. in New York. “The sentiment is a little bit improved at the end of the week, but we haven’t seen the end of safe-haven pressure on the yen, the franc and the dollar.”

The yen rose 0.1 percent to 109.3 to the euro at 5 p.m. in New York, from 109.42 yesterday, and posted a weekly gain of 2.4 percent, the most since the five days ended July 15. The dollar fell 0.2 percent to at 76.72 yen, compared with 76.84 yesterday and the post-World War II low of 76.25 yen reached March 17. The euro rose 0.1 percent to $1.4248, from $1.4241.

The Swiss franc depreciated 2.2 percent to 1.1086 per euro, following yesterday’s plunge of more than 5 percent, and weakened 2.1 percent against the dollar to 77.79 centimes. The franc rallied to a record 1.0075 per euro on Aug. 9.

Gain for Month

The franc climbed 5.9 percent over the past month against the currencies of nine developed-nation counterparts, according to Bloomberg Correlation-Weighted Currency Indexes. The yen appreciated 2 percent, the euro rose 0.6 percent and the dollar dropped 1.6 percent.

Switzerland’s currency tumbled the most against the euro yesterday since the shared currency’s 1999 debut after Swiss National Bank Vice President Thomas Jordan was reported as saying a temporary peg to the euro would be legal as policy makers try to stem the currency’s gains.

“There’s unwinding of short euro-Swiss positions on market jitters over the prospect of the SNB pegging the franc to the euro,” Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York, said today. “Regardless of the legality and the likelihood of that, it’s enough to start squeezing short Swiss positions from the market.” A short position is a bet a currency will fall.

Confidence Plunges

The dollar slipped versus the yen as the Thomson Reuters/University of Michigan preliminary index of consumer sentiment slumped to 54.9 from 63.7 the prior month. The gauge was projected to decline to 62, according to the median forecast in a Bloomberg News survey.

Federal Reserve Bank of New York President William C. Dudley said in a speech policy makers gave a “sober assessment” of the U.S. economy this week and that he cut his forecast for growth.

The policy-setting Federal Open Market Committee pledged Aug. 9 to keep its benchmark interest rate at zero to 0.25 percent until at least mid-2013 to revive an economic recovery “considerably slower” than it anticipated.

Implied volatility among currencies of the Group of Seven nations reached the highest level yesterday since June 2010, according to a JPMorgan Chase & Co. Index. It touched 14.72 before easing today to a reading of 13.28, still a 13 percent increase since the end of July.

Short-Selling Bans

France, Spain, Italy and Belgium will impose bans on short selling from today to stabilize markets after shares of European banks including French lender Societe Generale SA hit their lowest level since the credit crisis, the European Securities and Markets Authority said.

“If this ban is temporary and calms the markets and restores the credit markets, the euro will breathe a sigh of relief,” said Boris Schlossberg, director of research at the online currency trader GFT Forex in New York.

Credit default swaps on AAA-rated France doubled in the past six weeks to 169.8 basis points, more than triple the cost for the U.S., before easing to 147.5 basis points today. The U.S. lost its AAA rating from Standard & Poor’s on Aug. 5. A basis point equals $1,000 annually on a swap protecting $10 million of debt.

French President Nicolas Sarkozy and Germany’s Chancellor Angela Merkel will meet next week after concern the region’s debt crisis is spreading rattled French markets.

Industrial production in the euro area fell 0.7 percent in June after a 0.2 percent increase in May, data showed today. Greece’s economy shrank 6.9 percent in the second quarter from a year earlier, a fifth straight decline. French economic growth stalled in the second quarter from the previous three months, when it expanded 0.9 percent.

Euro Bets Reversed

Futures traders reversed their bets that the euro will gain against the U.S. dollar, figures from the Washington-based Commodity Futures Trading Commission show.

The difference in the number of wagers by hedge funds and other large speculators on a decline in the euro compared with those on a gain -- so-called net shorts -- was 8,273 on Aug. 9, compared with net longs of 1,763 a week earlier.

Canada’s dollar fell against most of its major counterparts as consumer sentiment plunged in the U.S., its biggest trade partner. The currency depreciated 0.3 percent to 98.73 cents per U.S. dollar.

Brazil’s real was the top performer against the greenback, gaining 0.9 percent to 1.6117 per dollar.

To contact the reporter on this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Robert Burgess at bburgess@bloomberg.net

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