Bloomberg News

Franc, Yen Advance on U.S. Debt Impasse, Moody’s Spain Review

July 29, 2011

July 29 (Bloomberg) -- The Swiss franc and yen rose against major counterparts as U.S. lawmakers struggled to resolve the budget deadlock and Moody’s Investors Service said it may cut Spain’s rating, spurring refuge demand.

The dollar erased its gain against the euro, fell to a record versus the Swiss franc and approached a postwar low against the yen as America’s economy grew last quarter less than economists forecast. Canada’s dollar was the worst performer among the most-traded currencies as the nation’s economy unexpectedly contracted in May.

“There is almost a default reaction in the FX market as you’re seeing dollar-yen, dollar-Swiss, euro-yen and euro-Swiss continue to plumb new lows,” said Samarjit Shankar, a managing director for the foreign-exchange group in Boston at Bank of New York Mellon, the world’s largest custodial bank, with more than $20 trillion in assets under administration. “There is a lot of gloom out there. It is quite firmly risk-off.”

The Swiss franc appreciated 1.5 percent to 1.1312 versus the euro at 5 p.m. in New York, after touching 1.1298, the strongest level since the shared currency’s 1999 debut. The dollar fell 2 percent to 78.55 Swiss centimes, from 80.12, after touching a record 78.54 centimes. The yen advanced 0.7 percent to 110.54 versus the euro, from 111.34.

Gold futures rallied 0.7 percent to $1,626.88 an ounce. The Standard & Poor’s 500 Index dropped 0.7 percent in a fifth consecutive decline. Crude oil for September delivery fell 1.6 percent to $95.86 a barrel. Yields on 10-year Treasury notes dropped to the lowest level on a closing basis since November.

Turkish Lira

Turkey’s lira, the biggest loser among more than 20 emerging-market currencies in July, fell today after NTV reported the military’s chief of staff and commanders of the three main military forces resigned. The currency depreciated 0.7 percent to 1.6885 per dollar, extending its decline this month to 3.9 percent.

South Korea’s won slid 0.3 percent to 1,054.07 versus the dollar on signs Asia’s fourth-largest economy is slowing. The currency headed for a weekly drop as Statistics Korea said industrial production expanded 6.4 percent in June from a year earlier, the slowest pace in nine months. Global funds sold more local shares than they bought for a fifth day.

The euro fell against the franc and yen as Spain’s Aa2 ratings were placed on review for possible downgrade by Moody’s. The country’s Prime-1 short-term ratings are unaffected by today’s action, Moody’s said.

Spain’s Elections

Prime Minister Jose Luis Rodriguez Zapatero said at a news conference in Madrid that elections will be held Nov. 20 instead of March to “project political and economic certainty.” The ruling Socialist Party has been losing support as it embarked on austerity measures.

The euro has weakened 2.6 percent in the past month in the worst performance among 10 developed-nation currencies tracked by Bloomberg Correlation-Weighted Currency Indexes.

The Swiss franc posted a sixth monthly gain versus the dollar, rising 7 percent in what would be the longest stretch of advances since June 1994. It advanced 7.8 percent versus the euro in July in the biggest advance since June 2010.

“The Swiss franc and yen are the best bets today,” said David Mann, regional head of research for the Americas at Standard Chartered in New York. “This is a reminder that ratings agencies will not be letting up if they don’t see enough of a consolidation in fiscal policy on either side of the Atlantic.”

Dollar Versus Yen

The dollar slid 1.2 percent to 76.77 yen, from 77.67 yesterday, after touching 76.73, the lowest level since falling to a post-World War II record of 76.25 on March 17. The greenback depreciated 0.5 percent to $1.4399 versus the euro after gaining 0.7 percent.

President Barack Obama said Republicans and Democrats are in “rough agreement” on their plans to raise the U.S. debt limit with just four days before a threatened default and the time for compromise is now.

House Republicans said they have secured the votes to pass Speaker John Boehner’s plan today. Obama opposes that plan. Senate Majority Leader Harry Reid said he will take action to move to a vote on his competing plan, and at the same time held out hope for a deal with Republican leaders.

Treasury Secretary Timothy F. Geithner has said options to prevent a default will run out on Aug. 2 if the limit isn’t increased. An administration official said yesterday the Treasury will give precedence to making interest payments on government bonds.

U.S. gross domestic product increased at an annual rate of 1.3 percent in the three months ended June 30, the Commerce Department reported. The median forecast of 85 economists in a Bloomberg News survey was for a 1.8 percent advance.

Canada’s dollar slid 0.6 percent to 95.52 cents versus the greenback as Statistics Canada reported that gross domestic product fell 0.3 percent in May, compared with a 0.1 percent advance forecast by economists.

--With assistance from Lukanyo Mnyanda in Edinburgh News and Joe Ragazzo in New York. Editors: Dennis Fitzgerald, Dave Liedtka

To contact the reporter on this story: Allison Bennett in New York at abennett23@bloomberg.net

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


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