Bloomberg News

Franc Gains for Third Day as Slowdown Signs Spur Safety Demand

September 02, 2011

Sept. 2 (Bloomberg) -- The Swiss franc strengthened for a third day versus all its major peers, and headed for a record weekly gain against the euro, as signs global growth is slowing boosted demand for the relative safety of the nation’s currency.

The franc climbed to a three-week high versus the 17-nation euro after a U.S. report showed job growth stalled last month and data yesterday show European manufacturing contracted more than earlier estimated. The Swiss government said today all five ruling-coalition parties support measures taken by the central bank to weaken the franc and protect the economy.

“The lack of employment growth in the U.S. and the headwinds on the euro side of the agenda that we’ve seen this week continue to play back into the safe-haven benefits of the Swiss franc,” said Jeremy Stretch, executive director of foreign-exchange strategy at Canadian Imperial Bank of Commerce in London. “It’s pretty much been the worst-case scenario for the Swiss National Bank over the last couple of days.”

The franc appreciated 1.4 percent to 1.11823 per euro at 4:24 p.m. in London, after earlier rising as much as 3 percent. The currency has gained 4.6 percent against the euro this week, the most since the single currency was introduced in 1999. The franc rose 1.6 percent to 78.27 centimes per dollar. The Swiss currency has gained 3.5 percent to 1.2753 per pound this week.

The Stoxx Europe 600 Index dropped 2.7 percent and the Standard & Poor’s 500 Index declined 1.6 percent.

U.S. Jobs

U.S. payrolls were unchanged last month and the jobless rate held at 9.1 percent as employers became less confident in the strength of the recovery, the Labor Department said in Washington. The median forecast in a Bloomberg News survey was for an increase of 68,000 workers.

A manufacturing gauge based on a survey of purchasing managers in the euro region fell to 49 in August from 50.4 in July, London-based Markit Economics said yesterday. That’s below an initial estimate of 49.7 published on Aug. 23.

Greek two-year yields rose as much as 4.27 percentage points to a euro-era record of 47.2 percent today after the Ta Nea newspaper reported a review of the country’s progress toward budget targets set to win outside aid was suspended, without saying how it got the information.

“That’s why the euro zone is under pressure,” said Simon Derrick, chief currency strategist at Bank of New York Mellon Corp. in London. That is “why euro-Swiss franc, the natural reflection of concerns about the euro zone, is doing what it’s doing.”

Investors are concerned a collapse in the talks could derail a 159 billion euro aid package that was agreed for Greece in July and still has to be ratified.

Greek ‘Fear’

“The fear is that the next tranche of money doesn’t get approved,” Derrick said. “Part of that’s to do with what’s happening domestically in Greece -- that tax collection still isn’t what it should be.”

The franc also rallied after the New York Times, citing people familiar with the matter, said the U.S. federal government may sue banks for misrepresenting the quality of securities backed by home loans.

While the SNB has so far avoided currency purchases, it may soon have no alternative but to follow through on its threat to intervene, said You-Na Park, a strategist at Commerzbank AG in Frankfurt.

The SNB may turn to the “nuclear” option of buying euros as it bids to stem the franc’s advance, she said. “The SNB will fire its nuclear weapon and start interventions if the franc reaches parity. The current franc levels really hurt the economy.”

Switzerland’s currency has risen 13 percent this year, the best performer among a basket of 10 developed-market currencies, according to Bloomberg Correlation-Weighted Currency Indexes.

Swiss government bonds rose, pushing the 10-year yield down nine basis points to 0.971 percent. Five-year yields dropped 10 basis points to 0.46 percent.

--With assistance from Klaus Wille in Zurich. Editors: Mark McCord, Nicholas Reynolds

To contact the writer on the story: Ed Ballard in London at eballard2@bloomberg.net

To contact the editor responsible for this story: Keith Campbell at dtilles@bloomberg.net


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