By Nicholas Hastings

A DOW JONES NEWSWIRES COLUMN

LONDON (Dow Jones)--The Swiss economy may be recovering faster than expected but the Swiss currency won`t.

In fact, the Swiss franc is more likely to fall than rise from here.

Despite the strong data, the Swiss economy remains at risk from the steepest recession since the Second World War and the Swiss National Bank isn`t about to start hiking rates yet.

If anything, with the franc`s trade-weighted index now up at a two-month high, the SNB will be even more vigilant about the currency`s strength and more likely to intervene if the euro falls much closer to CHF1.50.

See chart at

http://www.dowjoneswebservices.com/chart/view/2699

Last week, SNB board member Thomas Jordan repeated the bank`s objection to further franc strength as the recent rash of economic data pushed the currency steadily higher.

A strong rebound in the Kof business survey last month was followed by the latest purchasing managers` index, which rose firmly back over the 50 level that denotes economic expansion. Not only did all the subcomponents of the index show a healthy improvement but the index is now at its highest level relative to the euro-zone PMI since the end of 2008.

"This is impressive when you consider that Swiss manufacturers are still grappling with a particularly strong exchange rate," said Eoin O`Callaghan, a euro-zone economist with BNP Paribas in London.

On top of this, second-quarter gross domestic product figures showed that the economy contracted by 0.3% rather than by the full 1.0% that had been forecasted.

This has boosted the view that the Swiss economy may well be facing a V-shaped recovery.

Nevertheless, none of this is enough to bring about a policy change.

A continued rise in Swiss unemployment is likely to ensure that a recovery in domestic consumption remains sluggish.

Also, data later this week may show that deflation remains a problem. With the core rate of Swiss inflation likely to undershoot that of the euro zone, market participants will expect the SNB to reverse policy even more slowly than the European Central Bank.

This likely widening in the Swiss-euro zone yield differential will only encourage a rise in the euro against the franc, while the SNB would be expected to intervene again should the pair make it down as far as 1.5110.

Early Wednesday in Europe, the euro was pushing ahead to CHF1.5176 by 0645 GMT from CHF1.5160 late Tuesday in New York, according to EBS.

Sentiment towards the single currency and other high yielders had improved a little after Chinese stocks staged a rebound. The Shanghai Composite Index was up 1.1% despite earlier equity market losses that dragged the Dow Jones Industrial Average down 2% and the Nikkei 2.4%.

The euro was up at $1.4238 from $1.4217, while the dollar rose to Y93.08 from Y92.93. The euro was also up at Y132.41 from Y132.12.

Bloomberg TNI FRX POV

   Reuters   USD/DJ 
   Thomson   P/1066 or P/1074 

(Nick Hastings has covered the foreign exchange markets and industry for over 15 years. Apart from his written commentary and analysis, he also appears on CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

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(END) Dow Jones Newswires

September 02, 2009 03:15 ET (07:15 GMT)

0717 GMT [Dow Jones] The AUD will suffer from a China block, according to Forex Focus by Nicholas Hastings. The Australian economy has barely been hit by recession and the RBA is now poised to exit its credit crunch strategy. But the AUD is now a "China play" and will be hurt if Beijing succeeds in slowing the Chinese economy down. (NEH)

 
Contact us in London. +44-20-7842-9464 
Markettalk.eu@dowjones.com 
 

Click here to go to Dow Jones NewsPlus, a web front page of today`s most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=aRYUVpYKVvI7DbFf52kn9A%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

September 01, 2009 03:17 ET (07:17 GMT)

By Nicholas Hastings

A DOW JONES NEWSWIRES COLUMN

LONDON (Dow Jones)--The Aussie will suffer from a China block.

On the face of it, the Australian currency should be soaring.

Unlike other G10 countries, the Australian economy has barely been hit by the global recession. And the Reserve Bank of Australia is now poised to exit its global credit-crunch strategy by hiking interest rates as early as October.

Earlier Tuesday, the RBA left its rate unchanged at a 49-year low of 3.0%but issued a statement expressing some unease at the stubborn levels of inflation.

The rise in Australian yields should make the Aussie that much more attractive against other majors, where rates are unlikely to start rising again until well into 2010, and help it to extend its gains.

However, this promising outlook for the Aussie fails to take into the account Australia`s close association with China.

The commodity-dependent country is essentially what is called a `China play` - that is, its economy relies on the strong demand for commodities from its booming northern neighbor.

The problem is that this demand from China will now probably fall.

As each week goes by, policy changes in Beijing indicate that the government there is keen to curb the strong growth that characterized China in the first half of the year.

Last week alone, the Chinese government suggested limits on steel and cement production to prevent further overcapacity while the Bank of China said its second-half lending will be "much smaller" than in the first half of the year.

The declining growth expectations for the country has been reflected in the performance of Chinese stocks with the Shanghai Composite Index falling over 15% during August.

So far, this has all had a limited impact on the Aussie.

The currency continued to trade largely sideways for most of August, hanging on to the gains that brought it up to nearly $0.85 now from $0.64 early in the year. Support came from the steady flow of strong Australian data, including last week`s news that capital expenditure rose sharply rather than falling as forecast.

See chart at

http://www.dowjoneswebservices.com/chart/view/2688

This has fed speculation that the RBA will now move on raising rates sooner rather than later and provided another excuse for investors to keep on buying the Aussie.

However, this enthusiasm could now be misguided.

Despite press talk of a rate hike next month, the RBA may hold back, waiting to see whether the slowdown in China starts to take a serious toll on commodity prices.

Some economists suggest that prices are particularly at risk now that Chinese stockpiling is coming to an end.

This week, rather than focusing on any positive economic news about the broader global economic recovery, the Aussie could find itself more at risk if new data from China provide more evidence of a slowdown.

Early Tuesday, the Australian dollar slipped back - falling to $0.8421 by 0645 GMT from $0.8443 late Monday in New York, according to EBS.

Elsewhere, a recovery in Asian stock prices lifted global sentiment and helped to raise the dollar to Y93.10 from Y92.98. The euro was up at $1.4364 from $1.4333 and at Y133.73 from Y133.25.

The Shanghai Composite Index, which fell a sharp 7.0% Monday, rebounded to trade 2.1% higher Tuesday with the Nikkei gaining 0.4% by its close.

Bloomberg TNI FRX POV

   Reuters   USD/DJ 
   Thomson   P/1066 or P/1074 

(Nick Hastings has covered the foreign exchange markets and industry for over 15 years. Apart from his written commentary and analysis, he also appears on CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

Click here to go to Dow Jones NewsPlus, a web front page of today`s most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=aRYUVpYKVvI7DbFf52kn9A%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

September 01, 2009 03:15 ET (07:15 GMT)

 
   By Nicholas Hastings 
   A DOW JONES NEWSWIRES COLUMN 
 

LONDON (Dow Jones)--China has slipped into the driving seat and the omens aren`t good.

For most of the summer, China has been more of a back seat driver, with financial markets driven largely by hopes of a global economic recovery.

However, growing evidence that Beijing has now got the steering wheel and is slamming its foot on the economic brake is taking its toll.

A sharp decline in the Shanghai Composite Index, which has fallen as much as 15% since the end of July, has turned into a leading indicator for other markets and brought a swift end to the recovery in risk appetite.

As a result, safe havens such as the dollar and the yen are likely to be back on the buying list with high-yielding commodity currencies such as the Australian dollar hitting the skids.

Just how much Beijing plans to curb Chinese growth is unclear.

Earlier this week the vice-head of the country`s Development Research Center stated that stock markets were over-reacting to slowdown fears.

But, that hasn`t stopped global equity markets from falling.

The latest decline came after the State Council made it clear that it is concerned about overcapacity in major industries such as steel and cement. The council is now expected to implement curbs on lending and licenses that will reduce growth even further.

Its move is hardly surprising.

After embarking on a CNY4 trillion stimulus program earlier this year and encouraging banks to lend as much as CNY7.7 trillion in the first seven months of this year to help pull the global economy out of recession, Beijing is now worried about asset prices getting out of hand and is trying to slow the expansion down.

The fallout is not only evident in other major equity markets but also in the price of commodities which are now heading lower given that the Baltic Freight Index -a key indicator of international trade - has been in decline for five consecutive weeks.

Whether market fears over China`s slowdown are justified or not, the issue has become a primary driving force for sentiment with the Shanghai Composite leading the way down.

As Simon Derrick, a senior currency strategist with Bank of New York Mellon in London, warned: "The risk is now that a more sustained downtrend could lead investors to start pulling back from other related markets."

Early Friday, the Shanghai Composite fell another 3.5% as data showed that the Japanese unemployment rate hit its highest level since 1953 and that deflation persists with prices falling 2.2% over the last year. All this hardly bodes well for the global recovery.

The dollar rose to Y93.98 by 0645 GMT from Y93.50 late on Thursday in New York, according to EBS.

See chart at

http://www.dowjoneswebservices.com/chart/view/2673

The euro eased a little to $1.4357 from $1.4362 but rose to Y134.87 from Y134.22.

Bloomberg TNI FRX POV

   Reuters   USD/DJ 
   Thomson   P/1066 or P/1074 
 

(Nick Hastings has covered the foreign exchange markets and industry for over 15 years. Apart from his written commentary and analysis, he also appears on CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

Click here to go to Dow Jones NewsPlus, a web front page of today`s most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=I5gpE8lrGQfJ4vkJC6SOkQ%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 28, 2009 03:15 ET (07:15 GMT)

0717 GMT [Dow Jones] GBP is losing its friends fast, according to Forex Focus by Nicholas Hastings. Instead of the Bank of England being one of the first to hike rates, as the market has assumed all summer, it is more likely to now be one of the last because of concerns over the UK recovery. (NEH)

 
Contact us in London. +44-20-7842-9464 
Markettalk.eu@dowjones.com 
 

Click here to go to Dow Jones NewsPlus, a web front page of today`s most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=CIsrIqgd%2BLmkhB0nEsDfWg%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 27, 2009 03:17 ET (07:17 GMT)

By Nicholas Hastings

A DOW JONES NEWSWIRES COLUMN

LONDON (Dow Jones)--Sterling is losing its friends fast.

For most of this summer, the pound has remained well above $1.60 on the assumption that as the global economic recovery comes through, the Bank of England will be one of the first to hike rates.

However, that assumption is changing fast.

Rather than being one of the first, the Bank of England is more likely to be one of the last given its concerns over the U.K. recovery.

The central bank first gave some measure of its concern at the start of August, when it increased its quantitative easing program by GBP25 billion and suggested that monetary policy needed to be easier for longer.

Since then, its pronouncements on the U.K. economy have hardly got any better.

In fact, Deputy Governor Charlie Bean appeared to have put the boot in with his mealy mouthed conclusion in a speech late Tuesday that quantitative easing had been "moderately encouraging."

This not only helped to confirm fears that commercial banks are hoarding liquidity rather than passing it down to consumers, but also that instead of starting to wind up its quantitative easing program, the central bank may yet feel the need to extend the program once again.

Minutes of that early August meeting have already shown that Bean as well as the Governor Mervyn King voted for a GBP50 billion increase.

So, even though U.K. economic data may show sporadic evidence of economic growth, markets remain unconvinced about its sustainability and sterling yields have gradually fallen in recent weeks.

This shift, which has taken the yield spread against the euro 50 basis points higher in favor of the single currency in the last month, is expected to now ensure that the euro rallies back over GBP0.90 - a level last seen way back in May.

Whether the pound makes the same sort of losses against the dollar remains to be seen, especially if the U.S. currency itself comes under selling pressure.

However, as a so-called high-yielder that has been benefiting from a general appetite for higher risk assets, sterling could well find itself out of favor again as general concern over the global economic recovery becomes more of an issue.

Currency strategists at BNP Paribas warn that there could be even worse to come.

"Sterling is on its way to becoming the world`s funding currency," they said, suggesting that a good play is to short the pound against the world`s previous funding currency, the yen.

See chart at

http://www.dowjoneswebservices.com/chart/view/2664

Early Thursday in Europe, the pound continued to slide - falling to $1.6219 by 0645 GMT from $1.6245 late Wednesday in New York, according to EBS.

Elsewhere, investors remained averse to risk, despite Wednesday`s positive news on U.S. durable goods and home sales. Once again, China appears to be in the driving seat with Chinese stocks falling after the country`s state council issued a warning about overcapacity in some industries. The Shanghai Composite Index fell 0.5% while the Nikkei lost 1.6%.

The dollar fell to Y93.52 from Y94.13, while the euro fell to Y133.37 from y134.09. The single currency rose a little, however, to $1.4259 from $1.4245.

Bloomberg TNI FRX POV

   Reuters   USD/DJ 
   Thomson   P/1066 or P/1074 

(Nick Hastings has covered the foreign exchange markets and industry for over 15 years. Apart from his written commentary and analysis, he also appears on CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

Click here to go to Dow Jones NewsPlus, a web front page of today`s most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=CIsrIqgd%2BLmkhB0nEsDfWg%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 27, 2009 03:15 ET (07:15 GMT)

By Nicholas Hastings

A DOW JONES NEWSWIRES COLUMN

LONDON (Dow Jones)--The dollar may have escaped any nasty falls this summer.

But the big worry is the U.S. currency may not do so well this winter.

This will depend on two key factors.

The first is a likely rise in trading volumes and whether investors returning from their summer holidays are confident enough that U.S. interest rates are now headed higher.

The second is whether foreign central banks, which have continued to increase their dollar-denominated reserves, now start to lose their nerve.

Two things have changed while many investors have been away sunning themselves on the beaches.

Evidence of a global economic recovery has continued to grow. But with China showing signs of wanting to slam on the monetary brakes, and with the massive spending programs in many major economies coming to an end, there is rising concern that growth rates will not be maintained.

In fact, some experts fear that without some further fiscal injections, a sustained upturn may remain elusive for now.

The other change came from a shift in investor attitudes.

While recession concerns remained paramount, risk - or perceptions of risk - remained the prime driver for currencies. The dollar's safe-haven role ensured support as risk aversion increased and high-yielders lost their appeal.

However, this could be changing. As Stephen Jen, chief currencies investor with BlueGold Capital Management in London, pointed out: "In the past couple of weeks or so, the correlation between foreign exchange and general risk assets has declined considerably.

"Not only has the direction of the dollar become less sensitive to changes in risk, commodity currencies and the yen have also become less responsive."

So, as the summer ends and the volume of trading picks up, there can be no assumption that investor support for the dollar will continue.

Click Image to Enlarge

The problem is similar for those tracking support from foreign central banks.

Despite repeated warnings from China and other major players that they are worried the dollar will be undermined by the U.S.'s massive budget deficit, they have all spent the summer increasing their dollar-denominated reserves.

According to Simon Derrick, a senior currency strategist with The Bank of New York Mellon in London, the collective reserves of Brazil, Russia, India, South Korea, Taiwan, Hong Kong and Singapore have jumped by $170 billion, or 10%, in the five months to June. China's reserves alone grew by $219 billion, or 11%.

Derrick said there is good evidence to suggest their dollar reserves continued to rise during the summer, especially as this dollar support kept their own currencies weak and encouraged investment flows into their own stock markets.

However, the prospects of continued monetary weakness in the U.S. combined with the growing fiscal deficit will eventually take its toll and could well threaten the value of their reserves.

If that is the case, then diversification out of the dollar could well return as an issue that would make a nasty fall in the dollar later this year more likely.

Early Wednesday in Europe, the dollar was mixed to higher - benefiting in some places from a general improvement in market sentiment as good house price and consumer confidence data from the U.S. lifted global equities.

By 0645 GMT, the dollar had slipped to Y94.07 from Y94.15 late Tuesday in New York, according to EBS. The euro, which had risen as the Nikkei rallied 1.4% and the Shanghai Composite Index gained 2.1%, fell back again - down to $1.4311 from $1.4315 and to Y134.57 and Y134.77.

Bloomberg TNI FRX POV

   Reuters   USD/DJ 
   Thomson   P/1066 or P/1074 

(Nick Hastings has covered the foreign exchange markets and industry for over 15 years. Apart from his written commentary and analysis, he also appears on CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=tkncacjqPtCBrwfU68vC2w%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 26, 2009 03:16 ET (07:16 GMT)

Copyright (c) 2009 Dow Jones & Company, Inc.

("Forex Focus: Getting Indigestion With High Yielders" published at 0815 GMT misstated the location of the Jackson Hole symposium. The correct version follows.)

By Nicholas Hastings

A DOW JONES NEWSWIRES COLUMN

LONDON (Dow Jones)--Have global investors bitten off more than they can chew?

Their appetite for riskier asset markets rose at the start of this week - fueled not only by stronger-than-expected economic data but also by a positive interpretation of weekend comments coming out of the Jackson Hole symposium hosted by the Kansas City Fed.

The bottom line is that investors want to believe in the global recovery and are buying back into high yielders.

However, there is growing evidence that their confidence in the recovery is misguided. Not only is the strong economic data likely to prove unsustainable but official warnings are being ignored.

Moderating home prices in the U.S., the threat of more U.S. bank failures, slow euro-zone credit growth and lower corporate profits have all been flagged as developments that will ensure that third-quarter growth fails to match the healthy bounce seen in the second quarter and that the risk-friendly mood comes under threat.

Forecasts for economic data due later this week are fairly positive.

Key figures such as the latest Conference Board survey of consumer confidence later Tuesday and the latest Ifo survey from Germany are expected to improve.

Nonetheless, the risks are on the downside.

Take the sharp rise in U.S. existing home sales last Friday that helped to lift hopes that the U.S. consumer will soon be back on his feet. Few analysts expect this increase to herald a serious recovery in the housing market. On the contrary, they warn that sky-high foreclosures will continue to overshadow the market.

"No one should assume that stabilization will necessarily be followed by a sharp rebound," warned the strategy team at The Royal Bank of Scotland.

Bank failures, and the economic risks they entail, also remain an issue in the U.S., with another four U.S. banks collapsing last weekend.

With credit loss provisions likely to rise in a climate of growing unemployment, these risks will only get worse.

In the euro zone, meanwhile, slow credit growth is still a problem. The lack of credit not only poses a threat to corporate balance sheets but ensures that the region's financial institutions remain at risk.

These concerns were certainly expressed in Jackson Hole. Not only did Fed Chairman Ben Bernanke warn that this would be a very extended recovery but his counterpart at the European Central Bank, Jean-Claude Trichet, took an even more dovish view, warning of a bumpy economic road ahead.

However, investors have paid little heed.

Instead of using these remarks to downgrade their expectations for a rebound, they have taken them as evidence that interest rates will remain lower for longer - providing an excuse to buy into equity markets.

So if data later this week don't live up to expectations, they could well start to suffer from indigestion as their appetite for risk falls back again.

There were already signs of this early Tuesday with a decline in equity prices taking its toll on currencies.

With the Shanghai Composite Index losing 5% and the Nikkei 0.8%, the yen was generally higher as investors moved out of high yielders.

Click Image to Enlarge

By 0645 GMT, the dollar was down at Y94.02 from Y94.52 late Monday in New York, according to EBS.

The euro was down at Y134.46 from Y135.15 but ticked up marginally to $1.4303 from $1.4299.

Bloomberg TNI FRX POV

   Reuters   USD/DJ 
   Thomson   P/1066 or P/1074 

(Nick Hastings has covered the foreign exchange markets and industry for over 15 years. Apart from his written commentary and analysis, he also appears on CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)

TALK BACK: We invite readers to send us comments on this or other financial news topics. Please email us at TalkBackEurope@dowjones.com. Readers should include their full names, work or home addresses and telephone numbers for verification purposes. We reserve the right to edit and publish your comments along with your name; we reserve the right not to publish reader comments.

Click here to go to Dow Jones NewsPlus, a web front page of today's most important business and market news, analysis and commentary: http://www.djnewsplus.com/access/al?rnd=qfqGwzzRL07xEZkd3yNjoA%3D%3D. You can use this link on the day this article is published and the following day.

(END) Dow Jones Newswires

August 25, 2009 04:08 ET (08:08 GMT)

Copyright (c) 2009 Dow Jones & Company, Inc.