The Swiss franc gained the most in more than 36 years against a basket of nine developed-nation currencies tracked by Bloomberg on concern the U.S. economic recovery is in jeopardy and Europe’s debt crisis will worsen.
The Mexican peso and Canadian dollar weakened against the greenback on speculation the measure President Barack Obama signed today raising the U.S. debt limit and cutting spending will slow growth in North America’s largest economy. The Swiss currency set records versus the dollar, euro and pound as investors sought a refuge. The Australian dollar tumbled after the central bank kept its benchmark interest rate unchanged.
“A lot of this was a side show and now that it’s finished, the act playing on the main stage is the threat of a global slowdown that is in place,” David Watt, senior currency strategist at Royal Bank of Canada’s RBC Capital unit in Toronto, said of the U.S. debt-ceiling debate. “You have a classic risk-off stature for the performance table today, but the Swiss franc, that’s the only one people are buying.”
The franc gained 3.4 percent, the biggest gain on a closing basis since January 1975, according to the Bloomberg Correlation-Weighted Currency Indexes. The gauge tracks the currency against counterparts including the yen, pound, euro and U.S., Canadian, Australian and New Zealand dollars.
The Swiss currency climbed to 1.0823 per euro at 5 p.m. in New York, up 3 percent. It advanced 2.8 percent to 76.22 centimes per dollar. Against sterling, it reached 1.2423.
The euro declined 0.3 percent to $1.4203 after depreciating to as low as $1.4151. It weakened 0.4 percent to 109.58 yen. Japan’s currency gained 0.1 percent to 77.15 per dollar, from 77.21 yesterday.
Stocks slid, pushing the Standard & Poor’s 500 Index down 2.6 percent and erasing its 2011 gain.
The 17-nation currency fell after the European Union’s statistics office in Luxembourg said producer-price inflation slowed to 5.9 percent from 6.2 percent in May. Losses by Italian 10-year bonds pushed yields up to a euro-era record versus benchmark German bunds. Spanish bonds also slumped before sales this week of 2014 and 2015 securities.
European leaders agreed last month on a second bailout for Greece in a bid to restore investor confidence and stop the sovereign-debt crisis from spreading.
‘Focused on Greece’
“In their July meetings, Europeans were so focused on Greece they didn’t increase the size of rescue fund to backstop potential problems with Italy and Spain,” said Greg Anderson, a senior currency strategist at Citigroup Inc. in New York. “This morning’s news is new highs in Spanish and Italian spreads, and that shifts focus back to Europe.”
The Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners, rose 0.3 percent to 74.487.
The bill signed by Obama raises the nation’s borrowing cap until 2013 and threatens automatic spending cuts to enforce $2.4 trillion in spending reductions over the next 10 years. The deadline to raise the limit was today. Approval fueled concern budget cuts will weigh on growth in the world’s biggest economy.
The measure will defer decisions on the nation’s finances to a bipartisan panel and may only modestly reduce deficits while slowing economic growth. Standard & Poor’s said July 14 it may cut the U.S. AAA rating if an agreement to lift the debt ceiling doesn’t include “credible” deficit cuts.
John Taylor, founder of the world’s largest currency-hedge fund, said the dollar will remain the global reserve currency even if the U.S. loses the top credit rating.
“There really is absolutely no alternative to the dollar in the next five to 10 years,” New York-based Taylor, chief executive officer of FX Concepts LLC, said in an interview on Bloomberg Television’s “In the Loop” with Betty Liu.
Canada’s currency fell 0.5 percent to 96.13 cents per U.S. dollar, from 95.70. Mexico’s peso retreated 1.1 percent to 11.8458 per dollar, from 11.7199. The U.S. is the largest market for both nations’ exports.
The Swiss currency extended gains versus the greenback after U.S. consumer purchases fell 0.2 percent following a 0.1 percent rise in May, Commerce Department data showed today. The median estimate had been for a 0.1 percent increase.
The franc also advanced as Swiss retail sales increased and manufacturing unexpectedly accelerated, suggesting the nation is not suffering from its record strength.
Australia’s dollar was the biggest loser against the dollar, tumbling to as low as $1.0779, the weakest level since July 21. Reserve Bank of Australia Governor Glenn Stevens held the overnight cash-rate target at 4.75 percent for a record eighth straight meeting. He cited “the acute sense of uncertainty” in financial markets.
The yen reached 76.30 yen per dollar yesterday, the strongest level since March. Finance Minister Yoshihiko Noda said the nation’s currency is overvalued and he’s watching markets closely.
Officials are concerned the yen’s strength will hurt domestic companies and undermine the nation’s recovery from the March 11 earthquake and tsunami, the Nikkei newspaper reported, without saying where it got the information. Noda declined to comment today on possible currency intervention when speaking to reporters in Tokyo.
Japan last intervened on March 18, joining Group of Seven counterparts in selling the yen a day after it jumped to a record against the dollar.