Japan And Switzerland Take Steps To Prevent Currencies Strengthening - 4.8.2011
US Dollar
The dollar strengthened this morning against its major counterparts, but the gains look to be somewhat limited at the moment, ahead of several economic reports today, that are expected to show that US initial jobless claims rose, leaving the unemployment rate above 9%. According to estimations, the number of initial jobless claims rose by 7000 last week, to 405000. However the key report on employment will be released tomorrow and is expected to show the unemployment rate was unchanged at 9.2%, while non-farm payrolls added 85000 jobs in July. Yesterday’s ADP employment change resulted in a higher than expected figure – 114000 after 157000 in June. However another report revealed the Institute for Supply Management services index fell to 52.7 last month from 53.3 in June, showing the worst performance since 2010 in services including retail, health care and banking. The dollar recovered in Asian trading hours against the euro and the British pound after yesterday’s sharp losses and extended its rally against the Australian and Canadian counterparts.
Euro
The euro rallied yesterday against the US dollar toward 1.44, but fell is Asian trading session today below 1.43. The European Central Bank may postpone interest rate hikes till the next year as economic growth slows and the region’s debt crisis spreads to Italy and Spain, increasing pressure on the ECB to resume bond purchases. Policymakers are meeting in Frankfurt today and are expected to keep the benchmark rate at 1.5%. The yield of Italian 10-year government bonds jumped to 6.26% yesterday, the highest since the introduction of the single currency in 1999, while the yield on Spanish 10-year debt surged to 6.46% this week.
Swiss Franc
The Swiss National Bank yesterday lowered its target for the three-month London interbank offered rate to “as close to zero as possible.” The target range is 0%-0.25% now, instead of 0%-0.75%. The Swiss central bank unexpectedly cut interest rates and said it will increase the supply of francs to money markets to curb the “massively overvalued” currency, according to the bank’s statement. The central bank also added that it will expand banks’ deposits, or cash which can be withdrawn on demand, to 80 billion from 30 billion francs. The bank's statement said the “global economic outlook has worsened” since its last rate meeting in June. “At the same time, the appreciation of the Swiss franc has accelerated sharply during the last few weeks,” it said. “Consequently, the outlook for the Swiss economy has deteriorated substantially.” The franc dropped from a record against its major counterparts. Pair USD/CHF rose from 0.7609 on Tuesday to 0.7799 in Asian trading hours today.
Japanese Yen
The yen weakened against all its major peers after Japan intervened in the foreign-exchange market for the first time since March in order to prevent further strengthening of the nation’s currency that threatens the economic recovery. Japanese Finance Minister Noda said today’s intervention was unilateral, following joint yen sales on March 18 by the Group of Seven nations a day after the currency jumped to the postwar record of 76.25 per dollar. Noda said he hopes the Bank of Japan will take appropriate action as he made his announcement about the intervention. Pair USD/JPY rocketed this morning from 77.00 to 79.44.