The United States might have barely achieved a passing grade in end of semester exams, but remains a naughty schoolboy, disrupting the classroom and showing few if any signs of wanting to give up on a privileged lifestyle. Moody's Investor Services says the United States is still at risk of losing its top credit rating despite the debt-ceiling extension. The dollar index fell following the warning despite earlier affirmation that Moody's would leave alone the nation's AAA-rating, in place since 1917. Tensions within the currency market spilled over forcing the Swiss to flood the market with liquidity sending its franc tumbling from the heights of the Matterhorn.
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U.S. Dollar – The dollar also weakened after investors stumbled over surging bond prices as economic weakness caused panicked stock sales and created echoes of the recently closed-chapter of quantitative easing. Declining bond yields are a harbinger of a third wave of easing as risks to global growth keep washing ashore. The private ADP employment report showed an increase in new hires by 114,000 in July. In its June report, ADP shocked investors with news of an increase of 157,000 and more than 120,000 above market consensus. Looking back one month shows how that news caused a painful suckers' rally just before an official reading showed the weakest pace of jobs growth in four years. Yet at the time the ADP report lifted the S&P to a two-month high and within a whisker of a three-year peak. The dollar index recently traded at 74.10 after the reading for a loss of 0.5% on the day.
Euro – The real story within the Eurozone today belongs to the Swiss National Bank who unleashed a torrent of liquidity on the money markets aimed at curbing what it calls a “massive overvaluation” of its franc. The Swiss franc has rallied over the recent quarters as just about the sole European alternative to the 17-nation single currency unit whose weaker deficit-ridden nations have raised angst for the euro. The Swiss National Bank last intervened by selling the Swiss franc in 2009 when the recession was it its peak. The pressure on the franc was only temporarily relieved causing the central bank to abandon its harnessing efforts later claiming that the recovering economy could now withstand such appreciation. On Wednesday the SNB said it aimed to cut the three-month Libor rate from 0.25% to “as close to zero as possible”, while it more than doubled the sight deposits or cash available for immediate withdrawal from Sfr30 billion to Sfr80 billion. The euro surged from a record low at Sfr1.0795 to buy Sfr1.1100 following the effort. The reprieve also allowed the euro to rebound by 1% to the dollar where it recently reached a session peak at $1.4343.