Bloomberg News

Dollar Falls Versus Franc Amid Bets Fed Will Act; Euro Weakens

September 02, 2011

Sept. 2 (Bloomberg) -- The dollar fell for a third day versus the Swiss franc, the longest losing streak in a month, as investors bet the Federal Reserve will take steps to stimulate growth after U.S. employment unexpectedly stagnated in August.

The franc had its biggest weekly gain on record versus the euro, and currencies of commodity exporters dropped as stocks fell, boosting haven demand. The greenback had for its first weekly loss in almost a month versus the franc amid speculation the Fed may start a third round of asset purchases, or quantitative easing, debasing the U.S. currency. The euro fell versus most peers on concern Europe’s debt crisis is worsening.

“The knee-jerk reaction is to take risk off the table,” said Jack Spitz, managing director of foreign exchange at National Bank of Canada in Toronto. “This number goes a long way to firming up expectations that another round of asset buying could be in the cards.”

The dollar slumped as much as 3.1 percent versus the franc to 77.12 centimes before trading at 78.83 centimes at 5 p.m. in New York. It was the biggest intraday drop since Aug. 9, the day the Fed pledged to keep interest rates near zero until mid-2013. The greenback fell 0.2 percent to 76.80 yen, from 76.93.

The euro slid 1.3 percent to 1.1201 francs, dropping 4.2 percent for the week, the biggest decline since the 17-nation currency’s debut in 1999. It fell 0.5 percent to 109.11 yen. The euro was down 0.4 percent to $1.4205.

The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trade partners including the euro and yen, rose 0.3 percent to 74.706, from 74.479 yesterday.

‘Bear Trap’

Brazil’s real was the biggest loser against the dollar as risk appetite fell and the Standard & Poor’s 500 Index tumbled 2.5 percent.

“Stocks are much lower, and if they continue to unwind, it’ll continue the risk-off sentiment,” said Carl Forcheski, a director on the corporate currency sales desk at Societe Generale SA in New York. “The market exhausted itself, and it’s running into a bit of a bear trap.”

U.S. payrolls were unchanged last month, the weakest reading since September 2010, after an 85,000 gain in July that was less than first estimated, Labor Department data showed. The median forecast in a Bloomberg News survey called for a rise of 68,000. The jobless rate held at 9.1 percent.

The White House’s Office of Management and Budget said earlier in an update of economic forecasts through August the jobless rate will average 9.1 percent in 2011 and show little change next year.

Fed Tools

Fed Chairman Ben S. Bernanke said last week the central bank still has tools to boost a recovery, while sticking to his view that growth will pick up. He spoke at a conference in Jackson Hole, Wyoming. At last year’s event, he foreshadowed the Federal Open Market Committee’s second round of quantitative easing, the purchase of $600 billion of Treasuries from November through June.

Minutes of policy makers’ Aug. 9 meeting showed some FOMC members favored more aggressive action to stimulate the economy beyond the pledge adopted to hold interest rates near zero. The minutes were released Aug. 30.

President Barack Obama will address Congress Sept. 8 on his plans to boost jobs and accelerate growth.

The euro weakened against the franc as a Bloomberg survey showed factory orders in Germany, Europe’s biggest economy, likely decreased 1 percent in July from the prior month. The Economy Ministry will report the data on Sept. 6.

‘Pretty Bad’

“The outlook for the euro is pretty bad,” said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan’s third-biggest bank by market value. “For the past six months, there’s been no good news for it. Probably there’ll be none going forward either.”

The International Monetary Fund opposes European plans to force Greece to put up collateral in its second rescue, said four people with direct knowledge of the matter.

Greece’s two-year government bond yield surged to a euro- era record of 47.29 percent.

Canada’s dollar and Mexico’s peso slid against the greenback after the jobs report. The U.S. is the biggest trading partner of both nations. The Canadian currency fell 0.9 percent to 98.53 cents per U.S. dollar, and the peso dropped 0.9 percent to 12.4079 per dollar.

The Brazilian real dropped 1.3 percent to 1.6411 per dollar and touched 1.6470, its weakest since Aug. 9.

The Swiss franc surged 13 percent this year against nine other developed-nation currencies tracked by Bloomberg Correlation-Weighted Indexes. The greenback lost the most, 6.4 percent, while the euro was little changed.

Economic Stimulus

Switzerland’s government pledged 870 million francs ($1.1 billion) this week as part of an economic stimulus program to help counter the impact of the currency’s strength.

While the Swiss National Bank has avoided currency purchases, it may soon have no alternative but to follow through on its threat to intervene, economists and strategists said. Central banks intervene by selling or buying currencies to influence prices.

“The SNB will fire its nuclear weapon and start interventions if the franc reaches parity,” said You-Na Park, a strategist at Commerzbank AG in Frankfurt.

--With assistance from Chris Fournier in Halifax and Alex Kowalski in Washington. Editors: Greg Storey, Dennis Fitzgerald

To contact the reporters for this story: Catarina Saraiva in New York at asaraiva5@bloomberg.net; 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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