The Swiss franc edged sharply lower against its major counterparts in early New York deals Tuesday after rumors spread in the market that the Swiss National Bank will re-peg EUR/CHF to 1.25 from 1.20, tomorrow.
The Swiss National Bank, on September 6, set a minimum exchange rate for the Swiss franc at CHF 1.20 per euro and decided to enforce this minimum rate with the utmost determination. Today, Swiss authorities vowed to defend with “utmost determination” its cap on the franc’s exchange rate.
Even at this minimum rate, the SNB felt that the currency is still high and should continue to fall over time. Making the EUR/CHF peg at 1.20, the SNB reiterated early this month that it will take further measures if the economic outlook and deflationary risks so require.
Switzerland’s State Secretariat for Economic Affairs (SECO) today downgraded 2011 and 2012 growth outlook, citing the negative impact of high Swiss franc valuation on exports and company investment.
The federal government’s expert group projects 2011 growth at 1.9 percent, down from the prior estimate of 2.1 percent. For 2012, expansion is seen at 0.9 percent compared to the previous forecast of 1.5 percent.
Meanwhile, Switzerland’s trade surplus declined notably in August due to a sharp fall in exports, data from the Federal Customs Administration showed today. The trade surplus totaled CHF 808 million in August from CHF 2.81 billion in July.
Exports fell 7 percent month-on-month in August, following a 1.4 percent rise in July. On the other hand, imports rose 0.9 percent, reversing last month’s 0.1 percent drop.
The credit rating agency, S&P on Monday lowered Italy from A+ to A, which was three full notches below Moody’s rating on the nation. S&P also maintained its “negative” outlook on Italy, citing the nation’s weak growth and a divided and fragile government.
The Swiss franc slipped to 86.16 against the yen around 9:05 am ET, the lowest level since March 17. On the downside, the alpine currency may target support level at 84.70. The franc-yen pair is presently trading at 86.36.
The franc is presently trading at an 11-day low of 1.2183 against the euro with 1.22 seen as the next likely downside target level in near-term.
Germany’s economic sentiment deteriorated for the seventh month in a row in September, survey results from Mannheim-based ZEW Centre for European Economic Research showed Tuesday.
The index of economic sentiment fell by 5.7 points to -43.3 points. Economists were expecting the indicator to drop to -45.
The Swiss franc also reached an 8-day low of 0.8924 against the US dollar and 1.4026 against the pound by 9:05 am ET. If the franc weakens further, it may find target levels at 1.4140 against the pound and 0.8950 against the buck. Currently, the alpine unit is trading at 0.8873 against the greenback and 1.3848 against the pound.
Latest report by the Commerce Department showed that the U.S. housing starts in August came in at a seasonally adjusted annual rate of 571,000, a 5 percent drop from revised figures that showed 601,000 new housing starts in July. The housing numbers are significantly lower than the 592,000 that most economists had predicted.
However, new building permits for August, often a precursor to housing starts, came in significantly higher than expected at 620,000, on a seasonally adjusted annual basis, 3.2 percent higher than revised July figures. Most economists had predicted new permits to come in at 590,000.
Great bars and pick up’s!