Swiss Franc, Yen Gain on Drop in Asian Shares, Bank Suit Concern
Sept. 2 (Bloomberg) -- The Swiss franc and yen strengthened as a decline in Asian stocks and a report that the U.S. will sue banks over mortgage-backed securities boosted demand for refuge currencies.
The franc gained against all its major counterparts after the New York Times said the U.S. may sue companies including Bank of America Corp. for misrepresenting the quality of securities backed by home loans, citing three people briefed on the matter. The euro was set for its biggest weekly drop against the dollar in almost two months before a German report next week that economists say will show factory orders fell for the first time since March.
"The possibility that banks may be sued over mortgages appears to be fueling risk aversion," said Lee Wai Tuck, a currency strategist at Forecast Pte in Singapore. "This, in turn, is causing haven currencies such as the Swiss franc and the yen to be bought."
The franc advanced to as much as 1.1293 per euro, the strongest since Aug. 22, before trading at 1.1317 as of 1:03 p.m. in Tokyo from 1.1344 yesterday in New York. It rose 0.2 percent to 79.36 centimes per dollar. The yen was at 109.64 per euro 109.70.
The 17-nation euro was little changed at $1.4259, having lost 1.7 percent this week, the most since July 8. The dollar lost 0.1 percent to 76.88 yen and has risen 0.3 percent since Aug. 26, the biggest five-day gain since Aug. 5.
The MSCI Asia Pacific Index of regional shares retreated 1.1 percent, snapping a six-day gain.
Bank Suit
The federal agency that oversees housing U.S. lenders Fannie Mae and Freddie Mac is preparing to file suit against more than a dozen banks, seeking billions in of dollars in compensation, the Times said.
The franc and yen tend to strengthen during periods of financial turmoil because their export-reliant economies don't need foreign capital to balance current accounts -- the broadest measure of trade.
Factory orders in Germany, Europe's biggest economy, decreased 1 percent in July from the prior month, the first drop since March, according to the median of economist estimates in a Bloomberg News survey. The Economy Ministry will report the data on Sept. 6.
Rate Outlook
Overnight-index swaps for a period of four years or shorter, an indication of what derivative traders expect the central bank's benchmark interest rate will average, are below the ECB's target of 1.5 percent. All of the 37 economists surveyed by Bloomberg expect the ECB will hold the rate at its policy meeting on Sept. 8.
"The outlook for the euro is pretty bad," said Daisuke Karakama, a market economist in Tokyo at Mizuho Corporate Bank Ltd., a unit of Japan's third-biggest bank by market value. "For the past six months, there's been no good news for it. Probably there'll be none going forward either."
The Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against peers including the euro and yen, was at 74.541 from 74.528 yesterday and was poised for a 1 percent advance this week.
Payrolls in the U.S. rose by 68,000 jobs in August, down from a 117,000 increase in July, according to economist estimates before Labor Department data today.
U.S. President Barack Obama, facing re-election next year, will address a joint session of Congress on Sept. 8 on his proposals to speed job creation. The Office of Management and Budget has said the jobless rate will average 9.1 percent in 2011 and won't fall below 6 percent until 2016.
To contact the reporters on this story: Masaki Kondo in Singapore at mkondo3@bloomberg.net Kristine Aquino in Singapore at kaquino1@bloomberg.net
To contact the editor responsible for this story: Rocky Swift at rswift5@bloomberg.net
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