Financial News in Brief

• All eyes were on the Swissy yesterday. The franc strengthened by one percent against both the dollar and euro yesterday, after the Swiss National Bank kept its euro/franc target rate at the same level, defying expectations that it would take more aggressive measures to curb its currency. With Switzerland's economy weakening and prices falling, the SNB held its key interest rate close to zero, as expected. What came a surprise to many who had predicted monetary authorities could act more forcefully to prevent Europe's debt crisis from driving safe-haven buying of the franc, the central bank held its euro/franc target rate steady at 1.20. 
• SNB officials have pledged to defend that level to prevent strengthening of its currency. However, the lack of a new target rate, which analysts speculated could be set as high as 1.25 or 1.30, forced traders to unwind aggressive speculative positions that the currency would weaken further. When the SNB originally announced the EUR/CHF 1.20 floor on September 6, markets sent the franc surging without the central bank having to expend its foreign exchange reserves. Analysts suggest that the SNB is probably preserving its options and waiting to see if the market would take the franc lower without official intervention. 
• A little respite over bad news on the debt crisis gave the euro some breathing space against the dollar, which rose from Wednesday's 11-month low against the dollar at $1.2945. Encouraging US jobless and manufacturing data sparked a rally in stocks, which fed through to risk appetite for higher-yielding assets and supported the euro. However, investors remain generally pessimistic about the euro zone's sovereign debt problems, and are braced for the possibility that one or more economies within the 17-nation currency bloc could get hit with a credit downgrade.
• A blanket warning issued to euro zone members by ratings agency Standard & Poor's has hung over the market for more than a week. Fears of a downgrade have reached a crescendo since last week's European Union fiscal accord failed to alleviate concerns about financial strains that have driven Spanish and Italian borrowing costs to near-unsustainable levels. According to some analysts, Germany and France, the euro zone's largest economies who both hold a AAA rating, may well be in the firing line. 
• Overnight, the euro managed to claw back some lost ground against the dollar and yen in Asia but traders said the moves are due to year-end position adjustments and any gains should be short-lived. While investors remained pessimistic about the outlook of European debt problems and the euro, they have started to prepare for the year-end holiday season. Traders said their adjustments were mostly squaring off euro/dollar positions. Early rates saw the euro at $1.3013 and and Y101.50 from Y101.35. 
• Looking beyond the holiday season, Barclays Capital's chief currency strategist Masafumi Yamamoto said the euro will resume its declines as the debt problems are far from over. "Yields on European sovereign bonds such as Italy's remain at a level of risk, and investors are still concerned about capital shortage of euro zone financial firms," he said. Later in the day, Italian policy makers will vote on an approval of fiscal austerity plans, and Yamamoto said "that is really the only one important economic event of the global day." Meanwhile, the dollar was at Y77.87 from Y77.85, and the ICE Dollar Index, which tracks the US dollar against a basket of currencies, was at 80.181 from 80.286.