Bloomberg News

Swiss Franc Climbs to Record High Versus Euro on Greece Crisis

June 25, 2011

June 25 (Bloomberg) -- The Swiss franc rose against all of its 16 most-traded peers, reaching a record against the euro, as investors sought safety on concern an austerity plan to stabilize Greece won’t resolve Europe’s sovereign-debt crisis.

The dollar gained for a third week against the euro, the longest since February, on speculation Greece’s parliament may reject Prime Minister George Papandreou’s plan to cut the budget deficit, win more aid and avoid default. The pound slid for a fourth week against the dollar after U.K. policy makers discussed more monetary stimulus. Growth in U.S. manufacturing cooled in June, a report next week may show.

“All these headlines continue to add to uncertainty and nervousness amongst investors and continue to create the choppy price action that we’ve been seeing,” said Paresh Upadhyaya, head of Americas G-10 currency strategy at Bank of America Corp. in New York. “Just as you feel you’re on top of the Greek situation, you get thrown a curve ball.”

The franc touched 1.1806 versus the euro yesterday, the strongest level since the shared currency’s 1999 debut. It gained 2.6 percent for the week to 1.1826 per euro, from 1.2142 on June 17. The franc gained 1.8 percent to 83.31 centimes per dollar, from 84.82 centimes a week earlier.

The greenback appreciated 0.8 percent to $1.4188 against the euro, from $1.4306. The U.S. currency rose 0.5 percent against the yen to 80.43, from 80.05, gaining for the first time in five weeks. The euro fell 0.3 percent to 114.13 yen in its third week of losses, the longest losing streak since January.

No New Purchases

IntercontinentalExchange Inc.’s Dollar Index, which tracks the greenback against the currencies of six trading partners, rose for a third week as Federal Reserve Chairman Ben S. Bernanke dashed expectations policy makers would expand stimulus measures. That eased concern Fed policies would further debase the currency. The index rose 0.8 percent to 75.583.

The central bank said June 22 after a two-day meeting it will maintain monetary stimulus to support a flagging economic recovery while letting a $600 billion bond-purchase program end on schedule this month. Bernanke told reporters policy makers are in a “different position” now than last August, when deflation posed a “nontrivial risk” and he first hinted the Fed might undertake the debt buys.

Sterling fell for a fourth week against the greenback, the longest since September, as minutes of the latest Bank of England meeting showed some policy makers saw a risk that more bond purchases may be required.

The pound weakened 1.5 percent to $1.5959, from $1.6194 on June 17. It touched $1.5939 on June 23, a three-month low.

Austerity Vote

Greece’s Papandreou may struggle to pass austerity measures even after winning a confidence vote by 155-143 on June 22, which sent the euro to a one-week high against the dollar. The prime minister will seek parliament’s approval next week for a 78 billion-euro ($111 billion) package of budget cuts and asset sales, a condition for more aid the European Union and the International Monetary Fund.

“Anything that starts with a “G” I’ll be paying attention to,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York.

Finance Minister Evangelos Venizelos said he’ll speak to dissenters from the ruling Pasok party in a bid to persuade them to back the austerity measures in a vote that’s due by June 30.

Thomas Robopoulos, a lawmaker from the party, said he hadn’t decided whether he’ll vote for the plan. He said yesterday by telephone he was leaning toward voting against it.

“The majority that they had for the confidence on Tuesday of 155 seems to be dwindling away,” said Mark McCormick, a New York-based currency strategist at Brown Brothers Harriman & Co.

Italian Banks

The euro fell 1.5 percent over the past three months, according to Bloomberg Correlation-Weighted Currency Indexes, which track the currencies of 10 developed nations. The Swiss franc was the best performer, gaining 8.4 percent.

The 17-nation currency fell against most major counterparts yesterday as Italy’s two largest banks, UniCredit SpA and Intesa Sanpaolo SpA, led a drop in bank stocks in Milan. Trading in both firms’ shares was briefly suspended after breaching limits on intraday swings.

Moody’s Investors Service said June 23 it may downgrade 13 Italian banks because they would be vulnerable to a cut in the government’s credit rating. The firm said last week Italy’s ratings may be cut because of slowing economic growth and the potential for Europe’s debt crisis to drive up borrowing costs.

“Adding to unexpected risk to the euro, the market now has to concentrate on risks to Spain and Italy, which were long considered safe in this go-around,” said Bank of America’s Upadhyaya.

Canadian Dollar

Canada’s dollar dropped against the greenback as crude oil, the nation’s biggest export, fell. The International Energy Agency said its members will release 60 million barrels of oil from emergency stockpiles to alleviate possible shortages following the loss of Libyan crude.

The Canadian currency depreciated 0.9 percent to 98.86 cents per U.S. dollar, from 97.94 cents a week earlier. It touched 98.87, yesterday, within one cent of the weakest since March 17. Crude fell 2.3 percent to $91.16 a barrel in New York, dropping below $90 on June 23 for the first time since February.

The Institute of Supply Management’s manufacturing index slipped to 51.8 in June from 53.5 in May, according to a Bloomberg News survey of economists before the data is released on July 1. Readings above 50 signal growth.

--Editors: Greg Storey, Dave Liedtka

To contact the reporters on this story: Allison Bennett in New York at abennett23@bloomberg.net; Catarina Saraiva in New York at asaraiva5@bloomberg.net

To contact the editor responsible for this story: Dave Liedtka at dliedtka@bloomberg.net


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