The Swiss franc extended this week's impressive gains on Friday as concerns about the eurozone debt crisis and a gloomy economic outlook prompted fund investors to seek the safe-haven franc and test the Swiss National Bank's resolve. There was no sign of the SNB in the Swiss forward market to reinject liquidity and stem strength in the currency, whose stellar performance is a problem for its exporters, although traders remained on alert for more measures.
US employment data at 1230 GMT will be the focus for investors concerned about a global economic slowdown, with a lower-than-expected number likely to increase safe haven bids. The euro fell more than 2 percent against the franc to a session low of 1.1060 francs, extending a rapid dive from nearly 1.2000 francs on Monday. That put the single currency on course for its biggest ever weekly fall.
The dollar also dropped 2 percent to 0.7760 francs, with traders citing selling by a large European bank. Support is now seen around 0.7663, the 50 percent retracement of the August 9-29 rise from an all-time low of 0.7068 francs. SNB injections of liquidity last month pushed Swiss deposit rates into negative territory, forcing the currency to retreat from record highs, but analysts said persistent economic concerns are maintaining interest in it as a safe place to put funds.
"People are getting used to the fact that negative deposit rates are not much of a deterrent to the market if the Swiss franc appreciates sharply," said Chris Turner, head of fx strategy at ING. "Flows are increasingly a function of safety and not return."
Traders reported dire liquidity in the spot market and said Swiss options were starting to become dislocated as this week's sharp rally in the franc prompted a spike in implied volatility and speculation the SNB may need to take more action. One-week euro/Swiss vol - a measure of volatility - surged to around 28 percent versus around 20 on Thursday, while risk-reversals, which marks the premium required to hold a put or a call in a currency, jumped to around 3.50 in favour of euro puts, up from 3.10 on Thursday.
Markets were broadly in risk-averse mode as stocks fell sharply, breaking a four-day rally, while eurozone peripheral bond yields rose. Market players said risk aversion was fuelled by worries about Greece meeting its deficit targets, concerns over Germany passing plans to reform the European bailout fund this month and Italy's backtracking on budget austerity.
The euro fell to a three-week low against the dollar of $1.4208 before recovering to trade flat at $1.4260, after running into strong option barrier protection ahead of $1.4200. Non-farm payrolls data will be the last major US employment report before September's Fed meeting at which policymakers are increasingly expected to flag some sort of monetary easing.
Analysts said expectations for the jobs data have been lowered, however, after an employment gauge in a US manufacturing survey released on Thursday dipped to its lowest level since November 2009. The greenback traded down 0.2 percent on the day versus the yen at 76.73 , while the risk-correlated Australian dollar slipped 0.2 percent to US $1.0700. The dollar index, which measures the dollar's value against a basket of currencies, was close to flat at 74.475, hovering near a three-week high of 74.714 hit on Thursday.
Comments
Comments are closed.