WSJ:WORLD FOREX: Investors Flee To Swiss Franc As Euro Pressure Builds
-- Slew of negative euro-zone news weighs on euro
-- Investors rush to safety of Swiss franc
-- U.S. ISM manufacturing data to be closely watched
By Clare Connaghan
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The euro came under significant pressure in European trading hours Thursday after a disastrous set of euro-zone manufacturing surveys and continued political wrangling over Greece's debt reignited concerns about the 17-country bloc, sending investors rushing to the safety of the Swiss franc.
The euro plunged below $1.43 against the dollar and fell rapidly against the Swiss franc after a torrent of negative news flow finally started to take its toll on the single currency.
"The euro up until now had remained very resilient, but the sheer weight of negative news flow means the euro is going to start to struggle," said Ian Stannard, head of foreign-exchange strategy at Morgan Stanley in London.
Since European trading got underway the euro has been under pressure, initially weakening on a International Monetary Fund report that European banks' balance sheets have suffered serious damage from their holdings of troubled euro-zone sovereign debt.
In addition, sources said Greece's budget deficit could exceed 8.5% of gross domestic product this year, well above the official forecast of 7.6%. What's more, euro-zone finance ministers are still struggling to reach an agreement on the details of possible securities for bailout loans for Greece. Meanwhile, a draft proposal from German coalition lawmakers seen by Dow Jones Newswires showed the country's government believes parliamentary approval should be a precondition for aid. All of this has piled pressure on the euro.
Politics aside, the data didn't help, as Italian, French, and crucially German manufacturing purchasing managers' indexes were all disappointing, while overall activity in the euro zone fell back into contraction territory in August, ending a two-year run of growth. On top of that, Spain's five-year bond sale attracted lackluster demand.
"The continued bad news on the European debt crisis is likely to be the reason why the euro is the weakest currency in the G-10 universe," said Lutz Karpowitz, chief currency strategist at Commerzbank.
Against this backdrop it's not surprising to see investors piling back into the Swiss franc, with the currency rallying hard in a nervous European trading session. But as one dealer pointed out, signs are emerging that the Swiss National Bank is not as active in the forwards market which could also be a factor behind the currency's strength.
For now, the focus is firmly back on the euro zone and its debt problems, with Germany and other euro-zone member states still to ratify changes to the European Financial Stability Facility, or rescue fund, in the coming weeks. Volatility is expected to reign for some time.
"There are going to be a lot of hurdles and challenges ahead, so uncertainty is going to remain really high," said Morgan Stanley's Stannard.
In the nearer-term, attention turns to U.S. ISM manufacturing data due at 1400 GMT. Before that, however, initial jobless claims at 1230 GMT will provide another insight into the state of the country's jobs market, following Wednesday's ADP report and ahead of Friday's eagerly awaited nonfarm payrolls.
In Europe's emerging markets, the weaker euro weighed on the region's currencies, with the Hungarian forint among the biggest losers.
At 1048 GMT, the euro was trading at $1.4282 against the dollar, compared with $1.4370 late Wednesday in New York, according to trading system EBS. The dollar was at Y77.050 against the yen, compared with Y76.66, while the euro was at Y110.049 compared with Y110.22. The pound was at $1.62049 against the dollar, compared with $1.6415 late Wednesday in New York.
The ICE Dollar Index, which tracks the dollar against a trade-weighted basket of currencies, was at 74.512 compared with 74.137 late Wednesday in New York.
