August 10, 2011 / 4:20 PM / 8 years ago

FOREX-Euro falls on French bank fears; yen nears record

* Worries about French banking sector hit euro

* Swiss franc falls against dollar after SNB measures

* Dollar/yen close to record lows, intervention risk rises (Adds comment, details, updates prices)

By Wanfeng Zhou

NEW YORK, Aug 10 (Reuters) - The euro tumbled against the U.S. dollar and Swiss franc on Wednesday as concerns grew about possible trouble at French banks with large exposure to peripheral euro zone debt.

Sharp losses in stocks and worries about the global economic outlook also dented risk appetite and weighed on the euro. The growth-sensitive commodity currencies such as the Australian and New Zealand dollars saw heavy losses.

Shares of French banks were hit hard in Paris trading. Societe General (SOGN.PA), where traders have focused their attention, slid 14.7 percent. BNP Paribas (BNPP.PA) fell 9.5 percent. A Societe Generale spokeswoman denied rumors of impending trouble.

“Despite the European Central Bank’s buying of Italian and Spanish bonds, they have not been able to ease broader concerns on the European banking system and sovereign debt,” said Steven Englander, global head of G10 foreign-exchange strategy at Citigroup in New York.

“The euro will have a hard time keeping current levels unless European policymakers are willing to go further, quicker than they have demonstrated so far,” he added.

The euro last traded down 1.2 percent at $1.4190, after sliding to a session low of $1.41620 on trading platform EBS EUR=EBS. It lost 2.1 percent to 108.42 yen EURJPY=.

The euro zone common currency also came under pressure on earlier market talk of a possible downgrade of France’s AAA credit rating. The country is seen as vulnerable after Standard & Poor’s cut the United States’ credit rating by one notch to AA-plus last Friday.

But those fears largely faded after all three major ratings agencies — Fitch, Moody’s and Standard & Poor’s — reaffirmed their AAA ratings on France with a stable outlook.

The euro dropped 0.2 percent to 1.0358 Swiss francs EURCHF=. The franc soared as high as 1.0075 per euro on Tuesday, edging close to parity.

Implied volatility, a measure of the market’s expectations of future movements, remained at extreme levels, with one-month euro/Swiss franc implied vols EURCHF1MO= rising above 29 percent.

The dollar fell 0.9 percent to 76.39 yen. It hit a session low of 76.347 on EBS JPY=EBS, close to its record low hit in March of 76.25 and keeping investors wary that Japanese authorities may step in again to stem gains in the currency.


The dollar jumped 1 percent to 0.7296 Swiss franc CHF=EBS after the Swiss National Bank said it would significantly boost franc supply in the coming days in a bid to stem the currency's rally to record highs.

The dollar plunged more than 5 percent against the franc at one point on Tuesday, its worst trading day ever.

Analysts said the SNB’s measures would do little to halt exceptionally strong demand for the safe-haven franc after the Federal Reserve on Tuesday underlined the state of the struggling U.S. economy and promised to hold interest rates low for at least two years. For details, see [ID:nL6E7JA0BI] and [ID:nN1E7781WQ]

Goldman Sachs said it expects dollar-negative forces to strengthen and recommends that clients go short on the U.S. dollar on additional easing from the Fed.

“The Fed yesterday shifted to a more dovish stance,” Goldman wrote in a note to clients. “The Fed also said it stands ready to increase its balance sheet further, leading our U.S. economists to think (a third round of quantitative easing) now has a more than even chance of becoming reality.”

“All this suggests the dollar will likely continue to weaken on a broad basis,” the bank said.

The higher-yielding Australian dollar AUD=D4 dropped 1.6 percent against the U.S. currency, while the New Zealand dollar NZD=D4 slumped 3.3 percent.

Sterling fell 0.9 percent to $1.6169 after the Bank of England cut its growth and inflation forecasts GBP=D4.

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