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Tue 2 Aug 2011 12:26 PM

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Swiss franc buoyant amid global economy concerns

Swiss franc holds near record highs against euro and dollar, after rising strongly overnight

Swiss franc buoyant amid global economy concerns

The safe-haven Swiss franc gained on Tuesday on worries
about the global economy even as the US looked to have averted a debt default
after the House of Representatives approved an 11th hour deal to raise the
government's borrowing limit.

Strength in the yen also drew more warnings from Japanese
officials about possible intervention and nudged the Bank of Japan closer to a
further easing in policy.

The US debt bill will now need to clear the Senate, which is
expected to approve the $2.1 trillion deficit-cutting plan.

"While the political cloud of uncertainty may lift
somewhat, the economic storm clouds are darkening," Yelena Shulyatyeva, an
economist at BNP Paribas wrote in a client note.

The Swiss franc held near record highs against the euro and
dollar, having risen strongly overnight after reports on Monday showed the
world's manufacturing sector expanded at its weakest pace in two years last
month.

"Clearly, the report raises worries that the sector,
which has been a key engine of growth during the current recovery, is losing
steam reflecting a weakening around the globe in manufacturing,"
Shulyatyeva said.

The dollar fell 0.3 percent to 0.7815 Swiss francs , having
plumbed an all-time low around 0.7730 overnight. The euro also slipped 0.3
percent to 1.1130 francs , not far off a record low near 1.1025.

The dollar rose 0.3 percent to 77.44 yen having set a
four-month low of 76.29 yen the previous day on EBS, close to its record trough
of 76.25 yen hit after the March 11 earthquake.

Masanari Takada, a forex strategist at Nomura Securities,
said there is a chance Japanese authorities could intervene should the dollar
approach its all-time low, a level where a slew of option-related sell orders
are rumoured to be placed.

"Coupled with the Bank of Japan's monetary measures,
Japan will be able to intervene to push up the dollar against the yen,"
Takada said.

"Still, it may be difficult to keep the dollar
bolstered for long as it is under downward pressure because of caution towards
the outlook for the US economy and falling in US Treasury yields," he
said.

Sellers backed off due to caution over possible yen-selling
intervention by Japanese authorities.

Finance Minster Yoshihiko Noda said he was closely
communicating with the Bank of Japan and other countries on how to address the
yen's recent rise.

"If the strong yen continues, it will unmistakably
impact some industries. I want to closely analyse the potential impact,"
Noda told reporters after a cabinet meeting.

The dollar drew demand from speculators who were detected
building up dollar long positions in anticipation of possible intervention by
the Bank of Japan, Tokyo dealers said.

A series of stop-loss buy orders was cited at 77.70-78.20
yen, but Japanese exporters were expected to sell strongly between 79 and 80
yen, dealers said.

Tension over intervention would increase should the dollar
dip below 77 yen, with stop-loss sell orders rumoured at 76.80 yen and major
stops around 76.25 yen and 76.10 yen, they said.

Sources familiar with the central bank's thinking said it is
expected to ease monetary policy this week to support a fragile economic
recovery if the yen continues to rise quickly enough to trigger currency
intervention.

"Intervention is really only successful when it's
coordinated and I can't see central banks getting together in the current
environment to do a coordinated intervention to weaken the yen," said
Joseph Capurso, a strategist at Commonwealth Bank in Sydney.

The dollar managed to hang on to most of the gains it made
overnight against the euro, which is hampered by the euro zone debt problems.

The euro was down 0.1 percent at $1.4241 . It was still near
two-week lows around $1.4184 plumbed overnight.

The Australian dollar dropped after the Reserve Bank of
Australia kept its interest rates steady at 4.25 percent, disappointing some
market participants who had expected a credit tightening by the central bank.

Still, the RBA warned it had considered tightening and was
concerned about the outlook for inflation, leaving the door wide open to a hike
in coming months.

The Aussie last changed hands at $1.0925, down 0.4 percent
from late US trade on Monday.

 

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