Bloomberg News

Franc Surges on Safety Bid Before U.S. Job Report; Yen Advances

September 02, 2011

Sept. 2 (Bloomberg) -- The Swiss franc rose against all its major counterparts, and headed for the biggest weekly gain versus the euro since the single currency’s introduction, before a report forecast to show U.S. job growth slowed last month.

The franc climbed more than 2 percent versus the Mexican peso and Australian dollar as stocks fell and Greek bond yields soared amid concern the euro-area debt crisis will worsen. The yen also rallied versus 14 of its 16 major peers after the New York Times said the U.S. may sue companies including Bank of America Corp. for misrepresenting the quality of securities backed by home loans.

“Markets are turning more cautious again and guys are putting on risk-off trades ahead of the non-farm payrolls data,” said Chris Walker, a currency strategist at UBS AG in London. “That’s helping the franc.”

The franc advanced 2 percent to 1.11160 per euro at 6:40 a.m. in New York after rising to 1.10616, the strongest since Aug. 15,. It has gained 5.2 percent this week. The Swiss currency gained 1.9 percent to 78.02 centimes per dollar. The yen climbed 0.3 percent to 109.41 per euro, after appreciating to 109.13, the strongest since Aug. 19.

The euro fell 0.1 percent to $1.4249, a fourth day of declines that extended its loss this week to 1.7 percent.

Franc’s Surge

The franc has surged almost 17 percent against the euro over the past year as the euro-area’s worsening debt crisis and signs of slowing economic growth in the region boosted demand for the currency as a hedge against financial losses. Swiss Economy Minister Johann Schneider-Ammann said this week the nation’s exporters will “have to live with the strong franc,” reducing concerns the central bank may intervene to curb gains in the currency.

The Swiss government this week pledged 870 million francs ($1.1 billion) as part of an economic stimulus package to help counter the impact of franc strength. The central bank also lowered borrowing costs to zero last month and boosted liquidity to the money market to protect exports.

“The franc weakened quite a bit after the liquidity injection and is now coming back from that,” said Thanos Papasavvas, head of currency management in London at Investec Asset Management Ltd., which oversees about $95 billion. “The market seems to think the threat of further intervention has diminished.”

Investec Asset Management is “underweight” the franc and expects the currency to weaken, said Papasavvas.

Stock Losses

The MSCI Asia Pacific Index of shares retreated 1 percent, snapping a six-day gain. Europe’s Stoxx 600 Index fell for the first time in five days, losing 2 percent. Futures on the Standard & Poor’s 500 Index slipped 0.9 percent.

Greece’s two-year yield climbed as much as 392 basis points to a euro-era record 46.85 percent.

U.S. payrolls rose by 68,000 in August, down from a 117,000 increase in July, according to economist estimates before today’s Labor Department report. The unemployment rate probably held at 9.1 percent, marking 26 out of the last 28 months where it has been at or above 9 percent.

“People are putting on safe-haven bids by picking up some yen and franc before the non-farm payrolls data,” said Michael Sneyd, a foreign-exchange strategist at Societe Generale SA in London. “Reports that the U.S. could sue banks just adds uncertainty to the mix.”

The U.S. Federal Housing Finance Agency is likely to file a lawsuit against more than a dozen large banks in coming days, seeking billions of dollars in compensation, the New York Times said, citing three people briefed on the matter that it didn’t identify. Bank of America, JPMorgan Chase & Co. and Goldman Sachs Group Inc. are among firms that will be targeted, the newspaper said.

‘Risk Aversion’

The franc and yen tend to strengthen during periods of financial turmoil because their export-reliant economies don’t need foreign capital to balance current accounts -- the broadest measure of trade.

Factory orders in Germany, Europe’s biggest economy, decreased 1 percent in July from the prior month, the first drop since March, according to a Bloomberg News survey. The Economy Ministry will report the data on Sept. 6.

“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 euro has lost 1.2 percent over the past 12 months against a basket of its nine major peers tracked by Bloomberg Correlation-Weighted Currency Indexes. The dollar has weakened 12 percent over the same period, the worst performer ranked by the gauge. The franc has risen 17 percent.

Australia’s dollar snapped a five-day rally against its U.S. counterpart, losing 0.2 percent to $1.0696 from yesterday when it climbed $1.0765, the highest since Aug. 4.

--With assistance from Ron Harui in Singapore, Candice Zachariahs in Sydney and Kristine Aquino in Singapore. Editors: Nicholas Reynolds, Mark McCord

To contact the reporters on this story: Garth Theunissen in London gtheunissen@bloomberg.net; Masaki Kondo in Singapore at mkondo3@bloomberg.net

To contact the editor responsible for this story: Daniel Tilles at dtilles@bloomberg.net


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