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Swiss Franc Weakens as Euro-Area Economy Grows; Pound Advances - (Bloomberg

Posted by Chris Advincula on Aug 14, 2013 6:58:00 AM

The Swiss franc fell to the weakest in a month against the euro after a report showed the 17-nation region pulled out of recession last quarter, damping demand for the safety of the Swiss currency.

The franc dropped versus all its 16 major counterparts after German and French gross domestic product also exceeded analysts forecasts. The pound advanced for a fourth day against the euro after a report showed U.K. jobless claims dropped more in July than economists forecast. New Zealand’s dollar strengthened for the first time in three days after retail sales jumped in the second quarter.

“We definitely have a bias for a weaker franc,” said Kasper Kirkegaard, a senior currency strategist at Danske Bank A/S (DANSKE) in Copenhagen. “Given the recovery we are seeing in European economic data, this removes one of the big tail risks that has been holding back risk sentiment. If some of the money that has flowed into the Swiss economy reverses, it should add pressure to the franc.”

The franc dropped 0.4 percent to 1.2418 per euro as of 10:43 a.m. London time after depreciating to 1.24285, the weakest level since July 11. Switzerland’s currency dropped 0.5 percent to 93.75 centimes per dollar.

The euro was little changed $1.3246 and 130.15 yen. The yen was little changed at 98.25 per dollar.

Growth Returns

GDP in the 17-nation euro area expanded 0.3 percent in the second quarter after a 0.3 percent contraction in the previous three months, the European Union’s statistics office in Luxembourg said. German GDP increased 0.7 percent, more than the 0.6 percent gain forecast by economists. The French economy expanded 0.5 percent following two quarters of contraction.

“This slightly more positive data is welcome, but there is no room for any complacency whatsoever,” EU Economic and Monetary Affairs Commissioner Olli Rehn said in a blog post. “A sustained recovery is now within reach, but only if we persevere on all fronts of our crisis response.”

The franc has weakened 0.4 percent in the past month according to Bloomberg Correlation-Weighted Indexes that track 10 developed-nation currencies. The dollar fell 1.6 percent, while the euro rose 0.1 percent.

The pound rose versus 14 of its 16 major counterparts as a separate report showed Britain’s unemployment rate remained at 7.8 percent in the second quarter amid signs that the labor market is improving.

BOE Minutes

The Bank of England’s Monetary Policy Committee voted 8-1 to link the outlook for its benchmark interest rate to unemployment, according to the minutes released today of its July 31-Aug. 1 meeting.

The pound rose 0.2 percent to 85.65 pence per euro after climbing to 85.35 pence yesterday, the strongest since July 4. Sterling gained 0.1 percent to $1.5471.

The New Zealand dollar strengthened for the first time in three days versus the U.S. currency after Statistics New Zealand said retail sales increased 1.7 percent in the second quarter, the biggest gain since 2006.

The kiwi gained 0.5 percent to 80.02 U.S. cents after rising to 80.58 cents on Aug. 9 and Aug. 12, the highest level since July 29.

The Bloomberg U.S. Dollar Index advanced 0.1 percent to 1,027.02 after climbing to 1,027.23 yesterday, the highest level since Aug. 6.

Sixty-five percent of economists surveyed by Bloomberg said Fed Chairman Ben S. Bernanke will probably reduce the central bank’s $85 billion in monthly bond purchases in September.

The Federal Open Market Committee’s first step will probably be small, with monthly purchases tapered by $10 billion to a $75 billion pace, according to the median estimate in a survey of 48 economists conducted Aug. 9-13. The central bank will end the buying by the middle of 2014, they said. 


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