BLBG: Dollar Drops as SNB Fallout Limits Risk Appetite; Franc Weakens
The dollar fell versus the euro amid speculation investors, hurt by the Swiss National Bank’s decision to remove its trading limit against the shared currency, are paring the market risk they are prepared to take.
The greenback also declined against the yen as the steepest rout in Chinese equities since 2008 drove demand for haven assets. The Swiss franc dropped against all 16 of its major peers, trimming its surge in the wake of the central bank’s removal of the 1.20-per-euro floor. The euro advanced after tumbling last week amid speculation the European Central Bank will announce additional stimulus measures at its Jan. 22 policy meeting.
“The theme we are seeing is one of general risk reduction,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “Investors generally lost money when the floor went. As a response we are seeing investors generally reducing risk in the FX market. Bullish dollar is the most prevalent theme, so as people reduce exposure it’s long-dollar trades, which are trimmed back the most.”
The dollar weakened 0.3 percent to $1.1597 per euro at 11:10 a.m. London time after reaching $1.1460 on Jan. 16, the strongest since November 2003. The greenback fell 0.2 percent to 117.32 yen and was little changed against the pound at $1.5155.
The euro rose 0.1 percent to 136.09 yen after touching 134.71 on Jan. 16, the weakest since Oct. 16. The shared currency jumped 1.2 percent to 1.00615 Swiss francs after plunging 17 percent last week to close at 99.41 centimes. U.S. financial markets are shut for a public holiday.
Money Losers
Citigroup Inc., Deutsche Bank AG and Barclays Plc, the three biggest currency traders in a Euromoney survey, lost money when the SNB scrapped the euro cap on Jan. 15, according to people with knowledge of the companies, who asked not to be identified because the figures haven’t been made public. Retail foreign-exchange traders from New Zealand to New York also said they were hurt by the currency’s moves.
Data from the Commodity Futures Trading Commission shows that in the week ending Jan. 13, hedge funds and other speculators were the most bullish on the dollar against the euro since November and the most bullish on the currency against the pound since September 2013.
The yen appreciated versus all but two of its 16 major counterparts after Chinese regulators took measures to rein in margin trading.
Demand for the Japanese currency grew as the Shanghai Composite Index tumbled 7.7 percent, wiping out the year’s advance. The stock gauge’s 30-day volatility advanced to the highest level in five years.
Stocks Slide
“The slide in Shanghai stocks is leading to yen-buying,” said Yuji Saito, director of foreign exchange at Credit Agricole SA in Tokyo. “With risk sentiment deteriorating right now, anything obscure will lead to reducing positions.”
A key level for the dollar is 118 yen, which is the strike price for expiring options contracts this week with a combined notional value of $3.3 billion, according to Tamara Henderson, an economist at Bloomberg LP in Singapore. Other currencies trading near strikes on large options contracts against the greenback expiring this week include the euro, Australian dollar and yuan, Henderson wrote in research.
ECB policy makers will meet on Jan. 22 to discuss introducing new stimulus, including quantitative easing. The euro was the worst performer among the dollar’s 16 major peers in the week through Jan. 16.
To contact the reporter on this story: David Goodman in London at dgoodman28@bloomberg.net
To contact the editors responsible for this story: Paul Dobson at pdobson2@bloomberg.net Mark McCord, Keith Jenkins
