The U.S. dollar held on to its gains from yesterday as global equities fell on fears the world’s economy would slip back into recession and boosting demand for the greenback as a safe-haven. The U.S. dollar could continue to trade near its recent highs as U.S. stock futures foreshadow a considerably lower open. The U.S. dollar rallied a remarkable 8.0% versus the Swiss franc after the Swiss National Bank imposed a ceiling on the franc’s exchange rate for the first time in more than three decades and pledged to defend the target with the “utmost determination.” The central bank is “aiming for a substantial and sustained weakening of the franc,” the Zurich-based bank said in an emailed statement today. “With immediate effect, it will no longer tolerate a euro-franc exchange rate below a minimum of 1.20 francs” and “is prepared to buy foreign currency in unlimited quantities.” The franc has surged to records against the Euro and the U.S. dollar, hurting exports and eroding economic growth for the economy. While the SNB last month boosted liquidity to the money market and lowered borrowing costs to zero, investor concern that governments may struggle to contain Europe’s worsening debt crisis has continued to push the currency higher. Meanwhile, the U.S. economic docket is expected to show that ISM Non-Manufacturing index fell to 51.0 in August from 52.7 in July. Tomorrow sees the release of MBA mortgage applications and the Fed’s Beige Book, followed by weekly jobless claims on Thursday. Wholesale inventories will round out the light economic week on Friday.
The Euro rallied nearly 11.0% against the Swiss franc as the central bank imposed a ceiling on the EUR/CHF exchange rate. However, the Euro fell to near recent lows against the U.S. dollar as economic data disappointed and European stocks fell. The Euro area’s economic recovery lost momentum in the second quarter as governments imposed austerity measures in a bid to tackle the sovereign debt crisis. Gross domestic product expanded an anemic 0.2% in the quarter, after growing 0.8% in the previous period, the European Union’s statistics office in Luxemburg said today.
The Japanese yen fell versus the U.S. dollar as the greenback became the safe-haven of choice after the Swiss National Bank introduced a ceiling for the currency’s strength. Japanese authorities have in recent weeks signaled that they are shifting focus to ways to cope with persistent yen strength, rather than counter it. Then-Finance Minister Yoshihiko Noda on August 24th unveiled a $100 billion effort to help exporters by channeling some foreign-exchange reserves to the state-run Japan Bank for International Cooperation.
The British pound continued to slide versus the U.S. dollar even as British stocks bucked the global trend and gained modestly overnight. Indeed, the pound is currently trading near its weakest level since mid-July versus the U.S. dollar as worries surrounding the global economy have weakened demand for the higher-yielding sterling.
