Market Uncertainty Drives Investors to Swiss Franc
A stock liquidation on Friday pushed investors to seek refuge in the Swiss Franc, causing it to reach its highest level against the Euro since 2015. Meanwhile, the British Pound was affected by a report suggesting that the UK’s budget for this month will not include the expected increases in income tax.
Shifting Fed Expectations Impact Currency Movements
Multiple cross-currents exist in today’s markets, but the movements primarily occur as traders now view a rate cut by the Federal Reserve in December as less likely than a few weeks ago. More Fed officials have expressed caution about further easing, citing concerns over inflation and signs of relative stability in the labor market.
- Investor Outlook: Investors now see less than a 50% chance of a 25-basis-point cut in December, although January rate cut probabilities are virtually covered.
- Market Reaction: This shift in sentiment led to a sell-off of overvalued stocks and U.S. public debt, which spread to Asia and Europe. In currency markets, it attracted investors to the Swiss Franc.
Euro and Dollar Performance
The Euro fell to 0.9184 Swiss Francs, its lowest since the 2015 volatility when Swiss authorities detached their currency from the Euro. The common European currency then dropped 0.18% to 0.9206 Swiss Francs, while the US dollar touched its monthly low and fell 0.1% to 0.7920 Swiss Francs.
The US dollar was virtually unchanged against a basket of six currencies, trading at 99.26 units. The Dollar Index reached its highest level in six months in October but has fallen 0.3% during the week.
Against the Euro, the dollar appreciated slightly, trading at 1.1621.
Economic Data and Government Shutdown Impact
Markets are trying to predict what the upcoming U.S. economic data will reveal once published following the government shutdown. The White House indicated that the October unemployment rate might never be available, as it depends on a household survey that wasn’t conducted during the government shutdown.
British Pound’s Decline
Meanwhile, the British Pound fell against both the US dollar and the Euro after the Financial Times reported that UK Prime Minister Keir Starmer and Finance Minister Rachel Reeves abandoned plans to raise income tax rates, signaling a significant change just weeks before the November 26 budget.
- Pound Performance: The Pound dropped 0.5% against the US dollar and then fell another 0.3% to 1.3155 dollars. The Euro reached 88.64 pence, its highest level against the Pound since April 2023.
- Japanese Yen: The Japanese Yen traded at 154.7 units per dollar but is on track for an 0.8% weekly decline.
Key Questions and Answers
- What caused the Swiss Franc to reach its highest level against the Euro since 2015? Market turmoil, driven by a stock liquidation and investor uncertainty, led to a surge in demand for the Swiss Franc.
- How have shifting Fed expectations impacted currency movements? More cautious Fed officials about further rate cuts have reduced the likelihood of a December rate cut, causing investors to seek safer assets like the Swiss Franc.
- What is the current outlook for US economic data publication following the government shutdown? The availability of the October unemployment rate is uncertain due to the lack of a household survey conducted during the shutdown.
- Why did the British Pound decline against the US dollar and Euro? The abandonment of planned income tax rate increases by UK Prime Minister Keir Starmer and Finance Minister Rachel Reeves led to this decline.
