The U.S. dollar traded in a mixed direction overnight, modestly gaining against the majority of its counterparts but continuing to lose ground versus the safe-haven Japanese yen. The greenback was largely unchanged versus the Euro and British pound a day after the U.S. fed pledged to keep its benchmark interest rate at a record low at least through mid-2013 to revive a recovery that’s “considerably slower” than anticipated. The U.S. central bank is “prepared to employ additional tools to bolster an economy hobbled by weak hiring and anemic household spending, it said in a statement. The Swiss franc fell against all of its counterparts after the nation’s central bank said it expanded measures to fight the currency’s “massive overvaluation.” The Swiss National Bank said it will “significantly increase” the supply of liquidity to the money market and expand banks’ sight deposits. The SNB will also conduct foreign-exchange swap transactions as it attempts to curb gains in the Swiss currency caused by investors seeking a haven from the European debt crisis. Nevertheless, the greenback continues to trade near all-time lows versus the franc. With no major economic data slated for today, expect the dollar to see modest strength as U.S. equity futures point to a lower open for American shares.
The Euro rallied versus the Swiss franc as the Swiss National Bank intervened to weaken its currency after trading to record highs against the Euro and U.S. dollar. However, the common currency slipped modestly against the U.S. dollar as a French report showed industrial production fell more than economists estimated in June. The flow of recent weak data out of the Euro zone has caused traders to increase bets that the ECB will need to cut its benchmark interest rate in the coming months. According to a Credit Suisse Group AG index based on swaps, the ECB may cut its key rate by 31 basis points over the next 12 months. This compares to an expected increase of 25 basis points that was signaled on August 1.
The Japanese yen rose against the greenback as U.S. stock futures declined and the Swiss National bank intervened, causing the currency to become the top safe-haven choice of traders. The yen traded within 1.0% of its post WWII high versus the U.S. dollar, spurring increased concern a stronger local currency will derail Japan’s export-led recovery. Finance Minister Yoshihiko Noda said in parliament today that one-sided moves in the yen can hurt growth. The yen’s gains may be hindered somewhat in the coming days as investors will undoubtedly see risk of another intervention by the Bank of Japan.
The British pound fell against the Euro and the U.S. dollar as the Bank of England maintained its dovish stance towards the U.K. economy and future interest rates. BoE Governor Mervyn King said headwinds buffeting the U.K. economy are intensifying “by the day” and officials can expand stimulus if the outlook for growth deteriorates further. The BoE said that inflation may reach 5.0% this year before easing through 2013. It see inflation at about 1.8% (under its 2.0% limit) in the second quarter of 2013. However, the pound may continue to trade in relatively strong ranges as the European debt crisis and uncertainty in the United States has mildly boosted demand for British assets.
