Swiss Franc Weakens as Euro-Area Economy Expands; Pound RisesJoseph Ciolli and Jeff Marshall
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 most of 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.
“The euro-swiss move is one of modest improvement in the fundamentals in Europe,” said Mike Moran, a senior currency strategist at Standard Chartered in New York. “We’re also starting to see foreign depositors, which have sought stability in Swiss-denominated assets, start to pare down some of those allocations.”
The franc dropped 0.2 percent to 1.23995 per euro as of 5 p.m. in New York after depreciating to 1.24269, the weakest level since July 11. Switzerland’s currency declined for a fourth day against the dollar, sliding 0.3 percent to 93.55 centimes per dollar.
The euro fell 0.1 percent to $1.3255 and to 130.08 yen. The yen rose 0.1 percent to 98.14 per dollar.
The Israeli shekel decreased against most of its major peers after the Bank of Israel, which is awaiting the nomination of a new governor, bought dollars to curb a rally. The currency depreciated 0.4 percent to 3.5705 per dollar after earlier falling 0.7 percent, the most since July 30.
New Zealand’s dollar gained versus its 31 most-traded counterparts after core retail sales in the country jumped in the second quarter, stoking speculation the central bank will raise borrowing costs. The kiwi increased 0.8 percent to 80.28 U.S. cents.
Malaysia’s ringgit declined versus the majority of its 31 most-traded counterparts even as palm-oil output in the country surged by the most in 10 months in July. The currency dropped 0.4 percent to 3.2735 per dollar after declining to 3.2770, the weakest closing price since June 2010.
Dollar-ringgit was the fifth-most traded pair in the over-the-counter foreign-exchange options market, changing hands at 1,600 percent more than average for the past five Wednesdays at a similar time in the day.
Options on the dollar-ringgit rate totaled $2.3 billion, or 9 percent of the $25 billion total. That compared with $27 billion traded yesterday, according to data reported by U.S. banks to the Depository Trust Clearing Corp. and tracked by Bloomberg.
“Dollar-ringgit has started to attract more interest,” Standard Chartered’s Moran said. “I would relate the options activity to a building consensus on weakening fundamentals. This could start to be a breakout trade for a lot of investors looking for opportunities in Asia.”
Volume in options on the dollar-yen exchange rate amounted to $3.7 billion, the largest share of trades at 15 percent, trading at 45 percent less than average. Euro-dollar trading amounted to $3.2 billion, a 13 percent share, and down 21 percent on average.
GDP in the 17-nation euro area expanded 0.3 percent in the second quarter after a 0.3 percent contraction 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.
“We definitely have a bias for a weaker franc,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S in Copenhagen. “If some of the money that has flowed into the Swiss economy reverses, it should add pressure to the franc.”
The franc has slumped 1.4 percent in the past week, the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The euro fell 0.6 percent, while the dollar added 0.4 percent.
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.
The pound gained 0.4 percent to 85.51 pence per euro after appreciating to 85.28 pence, the strongest level since July 4. The U.K. currency rose 0.3 percent to $1.5500.
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 was little changed at 1,025 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. Bernanke will 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.