Dollar falls on global dislocations

January 19, 2015 08:36 AM

The dollar fell versus the euro, hurt by the Swiss National Bank’s decision to remove its trading limit against the shared currency. In the decision's wake, speculation investors are paring the market risk they are prepared to take.

The greenback also declined against the yen as the steepest rout in Chinese equities since 2008 drove demand for haven assets. The Swiss franc dropped at least 0.8% against all 16 of its major peers, trimming its surge in the wake of the central bank’s removal of the 1.20-per-euro floor. The euro advanced after tumbling last week amid speculation the European Central Bank will announce additional stimulus measures at its Jan. 22 policy meeting.

“The theme we are seeing is one of general risk reduction,” said Michael Sneyd, a currency strategist at BNP Paribas SA in London. “Investors generally lost money when the floor went. As a response we are seeing investors generally reducing risk in the FX market. Bullish dollar is the most prevalent theme, so as people reduce exposure it’s long-dollar trades, which are trimmed back the most.”

The dollar weakened 0.4% to $1.1608 per euro at 1:18 p.m. London time after reaching $1.1460 on Jan. 16, the strongest since November 2003. The greenback fell 0.1% to 117.42 yen and was little changed against the pound at $1.5147.

The euro rose 0.2% to 136.25 yen after touching 134.71 on Jan. 16, the weakest since Oct. 16. The shared currency jumped 2% to 1.01416 Swiss francs after plunging 17% last week to close at 99.41 centimes. U.S. financial markets are shut for a public holiday.

Money Losers

Citigroup Inc., Deutsche Bank AG and Barclays Plc, the three biggest currency traders in a Euromoney survey, lost money when the SNB scrapped the euro cap on Jan. 15, according to people with knowledge of the companies, who asked not to be identified because the figures haven’t been made public. Retail foreign-exchange traders from New Zealand to New York also said they were hurt by the currency’s moves.

Data from the Commodity Futures Trading Commission shows that in the week ending Jan. 13, hedge funds and other speculators were the most bullish on the dollar against the euro since November and the most bullish on the currency against the pound since September 2013.

The yen appreciated versus all but two of its 16 major counterparts after Chinese regulators took measures to rein in margin trading.

Demand for the Japanese currency grew as the Shanghai Composite Index tumbled 7.7%, wiping out the year’s advance. The stock gauge’s 30-day volatility advanced to the highest level in five years.

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