Weakness in emerging market currencies and equity markets and the fear of further contagion to other markets continues to contribute to the strength of the Dollar, Euro and Swiss Franc, as investors seek safe-havens. The Dollar is up % in trade-weighted terms, the Euro remains near a multi-year high and the Swiss Franc is at a17-month high.
Strong macro data are also making long positions in these currencies more appealing. US ADP private-sector employment data, a precursor to the official US labour market data out tomorrow, revealed a still robust increase of 163,000 jobs in August while the non-manufacturing ISM index surged to a stronger-than-expected 58.5 in August from 55.7 in July. The US economy remains in rude health which should make it easier for the Federal Reserve to credibly hike rates 25bp later this month.
Swiss GDP growth slowed to a still respectable 0.7% qoq in Q2 from 1.0% in Q1 but beat the consensus forecast and resulted in a higher-than-expected year-on-year growth rate of 3.4% (versus 2.9% in Q1). Continued robust growth in Switzerland is likely to translate at some point into higher inflation from currently modest levels and to a potentially more hawkish central bank. Higher rates are arguably the cherry on the cake for a safe-haven currency such as the Swiss Franc.
Sterling has also managed to join the party and has now appreciated for three consecutive sessions. The trigger today was a report, later denied, that the German government was considering to drop key Brexit demands. Markets remain very sensitive to Brexit-related developments and any positive news, even if proven unfounded, is seemingly being used as an excuse to buy Sterling.
