Market Review – 03/08/2011 22:21 GMT
Swiss franc retreats on SNB move but rebounds due to weak U.S. data
The Swiss franc retreated from another all-time high against the greenback Wednesday after Swiss National Bank unexpectedly cut interest rates. However, the franc rebounded as weak U.S. services data fueled worries about the pace of global economic growth.
Although the greenback extended its LT downtrend to a fresh lifetime low of 0.7611 against the Swiss franc in Australia, the pair rebounded strongly to 0.7788 in European morning after SNB unexpectedly cut its interest rate and said it will take measures against the franc. However, renewed selling pressured usd/chf sharply lower to 0.7635 in NY morning after the release of weaker-than-expected U.S. ISM non-manufacturing which came in at 52.7 in July versus the forecast of 53.6. Eur/chf also staged a strong rebound from a fresh all-time low of 1.0795 to 1.1149 in Europe before retreating.
SNB lowered its target for 3-month LIBOR to ‘as close as 0% as possible’ from 0.25% and said it will expand banks’ sight deposits to 80 billion francs from 30 billion francs and repurchase outstanding SNB bills. SNB also said it will ‘take measures against Swiss franc; considers the Swiss franc to be massively overvalued at present; current strength of Swiss franc is threatening development of the economy.’
Although the single currency briefly dropped to 1.4163 in Asian morning due to the selloff in Asian stock markets, the pair rebounded to 1.4223 in Asian midday on short-covering. Later, despite euro’s brief breach of Tuesday’s low of 1.4151 to 1.4143 in European morning, price rebounded strongly on active cross buying of eur/chf after SNB announced measures to curb franc’s strength and climbed to 1.4345 after the release of stronger-than-expected EU June retail sales (0.9% m/m and -0.4% y/y vs the forecast of 0.5% and -1.0% respectively). However, price retreated to 1.4259 in NY morning due to the selloff in U.S. stock markets and cross selling of euro before staging a recovery to 1.4341 in NY afternoon.
Versus the Japanese yen, although the greenback extended Tuesday’s recovery from 76.97 to 77.40 in Australia, renewed selling pressured the pair to 76.98 in European morning on risk aversion. Later, despite dollar’s rebound to 77.38 on short-covering, offers around 77.40 sent the pair lower below 76.98 to 76.79 in NY morning after the release of weaker-than-expected U.S. ISM non-manufacturing but price recovered to 77.07 ahead of NY closing.
Earlier in Australia, Moody’s confirmed their AAA rating for the U.S., but assigned a negative outlook. Moody’s said the U.S. commitment to raise the debt ceiling eliminated default risk, confirming its AAA rating. However, the rating agency said ‘there is risk of U.S. downgrade if there is weakening of fiscal discipline in the coming year.’
Despite the British pound’s brief fall to 1.6251 in Asian morning, cable rebounded strongly in European session in tandem with euro and rose to 1.6409 after the release of much stronger-than-expected U.K. July services PMI (55.4 vs the forecast of 53.2) before retreating. Later, renewed buying at 1.6358 lifted the pair again and price then climbed to an intra-day high of 1.6432 near NY closing.
DJI tanked by more than 150 points in NY morning but eventually pared all the initial losses and closed the day higher at 11896.44, up by 29.82 points. FTSE-100, CAC-40 and DAX tumbled by 2.34%, 1.93% and 2.30% respectively.
On the data front, U.S. ADP employment change was 114K vs forecast of 100K, data for the previous month was revised down from 157K to 145K.
Data to be released on Thursday include:
New Zealand Employment change, Unemployment rate, Germany Factory orders, U.K. BOE rate decision, BOE Asset purchase (gbp), EU ECB rate decision, U.S. Jobless claims.