The Swiss franc fell against all of its 16 most-traded peers after the central bank unexpectedly cut interest rates to weaken the currency as it strengthened to records and threatened the nation’s economic recovery.
The dollar extended losses against the yen after U.S. service industries expanded at the slowest pace in 17 months. Australia’s dollar slumped versus most major currencies. The franc pared drops against the euro and dollar as investors sought stability, even as the Swiss National Bank said it will increase the supply of the currency to money markets.
“Until the global picture gets better, there is still going to be movement into safe havens like the Swiss franc from currencies like the Australian dollar,” said Brian Taylor, chief currency trader a Manufacturers & Traders Trust Co. in Buffalo, New York. “Multilateral intervention is the only way to prop up a currency.”
The franc depreciated 1.9 percent to 1.1033 versus the euro at 5 p.m. in New York, from 1.0827 yesterday. It fell as much as 2.8 percent, the most since March 12, 2009, when the SNB said it began selling the franc. The currency earlier today rose to a record 1.0796 per euro. It slid 1.1 percent to 77.04 centimes per dollar after earlier strengthening to a record 76.10 centimes and weakening to 77.88.
The Organization for Economic Cooperation and Development’s gauge of purchasing power parity shows the franc is overvalued 49.5 percent against the dollar and 42 percent versus the euro.
Top Performer Yesterday
Switzerland’s currency was the top performer yesterday among the most-traded currencies tracked by Bloomberg, and the yen was No. 2. The franc still maintained a 4.4 percent advance versus the euro and a 4.1 percent increase against the dollar for the past five days. The currency has gained favor as bond yields surge across the euro region’s most indebted nations and economic data are weaker than forecast in developed nations.
“The market’s reaction speaks volumes because although we’ve had a large move in euro-Swiss, it hasn’t even managed to retrace yesterday’s move,” said Camilla Sutton, head of currency strategy at Bank of Nova Scotia in Toronto. “The BOJ has an interest in scaring the long side of the market every once in a while, so that threat has obviously increased.”
Japan’s policy makers signaled increased concern this week that the yen’s approach toward a post-World War II high are hurting domestic industries and undermining the nation’s recovery from the March 11 earthquake. Finance Minister Yoshihiko Noda said today the government must do everything it can to prevent companies from relocating, and that authorities will do their best to combat the currency’s advance.
“Intervention is supposed to affect investor sentiment,” Noda told lawmakers in parliament in Tokyo today. “I think we need to do our best to ensure it has the maximum effect if we were to intervene.”
Central banks intervene in foreign-exchange markets by selling or buying currencies to influence prices.
Australia’s dollar fell for a fifth day against the U.S. currency and dropped to the lowest since March versus the yen after the Bureau of Statistics reported an unexpected drop in retail sales in June and a lower-than-forecast trade surplus.
The Aussie weakened 0.2 percent to $1.0755, from $1.0779 yesterday. It slid as much as 1.3 percent to 82.08 yen.
The Swedish krona rose versus all major currencies on speculation the country’s economic growth will warrant further interest-rate increases. The krona strengthened 1.1 percent against the dollar to 6.3456.
U.S. Credit Rating
IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six major U.S. trading partners including the euro and yen, fell for the first time in three days. It dropped 0.7 percent to 74.013 after Moody’s said yesterday the U.S. credit rating may be cut for the first time.
The U.S., rated Aaa since 1917, was placed on a negative outlook even as Moody’s confirmed the top rating after President Barack Obama signed into law yesterday a plan to lift the nation’s borrowing limit and cut spending. Investors speculated the budget cuts will damp economic growth.
The dollar depreciated 0.8 percent to $1.4323 versus the euro, from $1.4203 yesterday. The yen fell 0.7 percent to 110.38 per euro and gained 0.1 percent to 77.06 per dollar. It touched 76.25 yen on March 17, a postwar record.
Canada’s dollar declined versus the greenback as the Institute for Supply Management’s index of non-manufacturing businesses, which covers about 90 percent of the economy, fell to 52.7 from 53.3 in June. It was the slowest pace since February 2010. Readings above 50 signal expansion.
The Canadian currency weakened as much as 0.4 percent to 96.47 cents per greenback before trading at 96.21 cents. The U.S. is Canada’s biggest trade partner.
The Swiss National Bank lowered its target for the three-month London interbank offered rate to “as close to zero as possible,” from 0.25 percent. The Zurich-based central bank said it will also expand banks’ sight deposits, or cash that can be withdrawn on demand, to 80 billion Swiss francs ($104 billion), from 30 billion francs, and repurchase outstanding SNB bills, according to an e-mailed statement today.
The franc soared 25 percent in the past 12 months, making it the best-performing currency among 10 developed-nation peers in the Bloomberg Correlation-Weighted Currency Indexes.