Forexpros – Last week saw the Swiss franc pull back from a record high against the U.S. dollar, after the Swiss National Bank cut its key lending rate to a narrower range and said it would take further action if warranted to curb the franc’s steep gains.
USD/CHF hit 0.7578 on Friday, the all-time low; the pair subsequently consolidated at 0.7674 by close of trade on Friday, plunging 2.3% over the week.
The pair is likely to find short-term support at 0.7578, Friday’s record low and resistance at 0.7801, last Thursday’s high.
On Wednesday, Switzerland’s central bank narrowed its three-month Libor rate to 0.25% from 0.75%, saying the currency was “massively overvalued”, adding that it “won’t tolerate” a “tightening of monetary conditions” and therefore was taking measures against the franc.
The SNB also said it will “significantly” increase the supply of liquidity to the Swiss franc money market over the coming days to help counter the currency’s appreciation.
The bank said the action came about after economic outlook “deteriorated substantially” following the franc’s surge to a record against the euro and the dollar.
SNB President Philipp Hildebrand reiterated his stance on Friday, calling the franc’s strength “absurd” and saying that the bank won’t exclude “further measures” to curb its advance.
“We clearly communicated that we are willing to take further measures if those are necessary,” Hildebrand said.
Meanwhile, the U.S. Department of Labor said on Friday that nonfarm payrolls rose by 117,000 in July, above expectations for an increase of 95,000, while the previous month’s figure was revised up to a gain of 46,000 from a previously reported 18,000.
The unemployment rate dipped unexpectedly to 9.1% from 9.2%, the first decline in four months.
The better-than-expected jobs data failed to ease fears that the U.S. economic recovery was stalling, after a flurry of weak data earlier in the week fuelled concerns over a possible double-dip recession.
The greenback fell to a record low against the Swissie on Tuesday as worries over the U.S. economic outlook and concerns over sovereign debt contagion in the euro zone boosted safe haven demand.
After markets closed Friday, ratings agency Standard and Poor’s downgraded the U.S. sovereign debt rating by one notch to AA+ from AAA, and kept the rating outlook at negative, suggesting a further downgrade could be possible within the next 12 to 18 months.
S&P said the debt ceiling deal reached by lawmakers to cut the federal deficit by an estimated USD2.1 trillion over a decade did not go far enough and “America’s governance and policymaking is becoming less stable, less effective, and less predictable than what we previously believed.”
In the week ahead, markets will get their first chance to react to the historic U.S. debt downgrade. Traders will also be paying close attention to Tuesday’s Federal Reserve rate announcement and its statement on monetary policy for any hints regarding further easing.
Ahead of the coming week, Forex Pros has compiled a list of these and other significant events likely to affect the markets.
Monday, August 8
Switzerland is to produce official data on the unemployment rate, an important signal of overall economic health.
Tuesday, August 9
Switzerland is to publish official data on consumer climate, a leading indicator of consumer spending.
Meanwhile, the U.S. is to publish preliminary data on nonfarm productivity and labor costs, which are closely linked to consumer inflation.
In addition, the Federal Reserve is to announce the federal funds rate. The announcement will be followed by the bank’s rate statement, which gives important insights into the economic conditions that influenced the rate decision.
Wednesday, August 10
The U.S. is to release a government report on the federal budget balance as well as data on crude oil stockpiles and wholesale inventories.
Thursday, August 11
The U.S. to publish official data on its trade balance, as well as a government report on initial jobless claims and natural gas stockpiles.
Friday, August 12
The U.S. is to round up the week with government data on retail sales, the primary gauge of consumer spending, while the University of Michigan is to produce preliminary data on consumer sentiment and inflation expectations.
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