The Euro lost near to 0.8 percent over the week against the greenback, but the real story can be seen by looking at its performance against the perceived safety of the franc. The Swiss franc continues to strengthen against the greenback with the EURCHF pair falling to another all-time low last week of CHF 1.1492 and falling even further in early trade to fresh all-time lows of 1.1375.
Likewise the US dollar also forged a new all-time lows against the Swiss franc this morning falling to lows of 0.8046.
The incessant rise of the Swiss franc has Swiss National Bank watchers on alert as the bank continues to express concern over its unprecedented appeal as a safety play. The persistence of the Euro-American debt concerns further increase the likelihood of Swiss franc strength, thus fueling speculation the SNB may impose capital controls to stem the rising currency. Of course another possibility is government relief directly to exporters or direct currency intervention. The latter would not be the favored option considering the losses sustained by the SNB as a result of directly intervening in the currency market. The central banks attempts to halt the strengthening currency lost CHF14bn in the first half of 2010.
We only need to look to the unrelenting rise of the Japanese Yen for clues in the sustainability of direct intervention.In response to the horrific events in Japan earlier this year – the G7 jointly intervened to stem the Yen’s advance. The threat of large scale repatriation of capital was enough to induce G7 nations to conduct joint intervention – but the action failed to have a sustained impact. These safe haven attributes have once again seen the JPY strengthen against its major rivals most notably making a convincing break to the downside of the ¥80 to the US dollar.
Like its neighbour across the Atlantic, the US is not without its potential pit falls. From debt ceiling woes to QE3 conjecture, there’s a veritable treasure trove of themes that could further devalue the greenback in the week ahead. Further complicating the US dollar matrix is the strengthening argument inflation is beginning to take hold - with Friday’s CPI numbers showing core inflation which excludes food and energy rose 0.3 percent in June. Although headline inflation declined 0.2 percent, (attributed to a drop in energy prices) core inflation rose at an annual pace of 1.6 percent once step closer to the Fed’s target of close to but below the 2 percent level. Headline inflation grew at an annual pace of 3.6 percent. The university of Michigan consumer confidence data sank below expectations to record a drop to 63.8 in June from a previous 71.5. Economists had tipped a rise to 72.2.
Considering this inherent lack of faith in fiat currency, it’s no coincidence the price of gold continues to forge new all-time highs. Last week spot Gold rose to highs of $US1,595.00 a troy ounce and has kicked off the week in spectacular style making new highs of $US1,599.00 a troy ounce.
It’s a fairly light week for economic data in the US this week with feedback on the housing sector the primary focus. The local week ahead will also be light on economic directives with the exception of to the RBA minutes for July, which will no doubt keep interest rate talk in the headlines.
We have another European summit coming up on Thursday which is expected to provide an understanding on how Greece’s custodians plan to structure a second round of financial assistance. Whatever the summit may bring, time is running out – the threat of contagion has amplified and threatens to spread to the heart of Euro-zone.
Source: http://www.forextv.com
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