Yen Dominates As Treasury Ramps Up Contingency Plans (FXF, FXY)

Tim Seymour:  Between rumbling about a new downgrade for Spain and the struggle in the U.S. to avoid default, neither the euro nor the dollar are looking good today. 

Spain is back under the microscope at Moody’s as the rating agency worries there is no timetable for the European Union to start buying its members’ sovereign debt.

If Moody’s decides that the risks have expanded relative to Madrid’s progress toward improving its balance sheet, a downgrade to AA3 from AA2 could follow.

The news is putting the euro back on the defensive. The dollar is having its own problems.

Today the U.S. Treasury has to start talking about contingency plans if Congress fails to raise the federal borrowing limit by August 2.

Any news will probably come after the close. The details on which bills the government plans to pay, and which ones to skip, can only hurt sentiment on the dollar.

Standard & Poor’s already has the U.S. sovereign credit rating — AAA, the highest possible — on watch, noting that even if Congress makes a deal, a “credible solution” is required to avoid a downgrade.

The prospect of eroding credit on two continents has driven capital into the relative havens of the Japanese yen and the Swiss franc, or CHF.

Both currencies have touched historic highs against the dollar in particular, with the yen currently trading at 77.56 per dollar while one CHF is buying a record $1.24.

You can see the trajectory of the yen and franc by taking a look at the ETFs that mirror their movements, CurrencyShares Japanese Yen Trust ETF (NYSE:FXY) and CurrencyShares Swiss Franc Trust ETF (NYSE:FXF), respectively:

Written By Tim Seymour From Emerging Money

Emerging Money provides insightful and timely information about the increasingly important world of Emerging Market investments. CNBC Emerging Markets Contributor Tim Seymour leads the team of Emerging Money to bring you cutting edge global news and analysis.

About Tim Seymour: Tim is a founder of Emerging Money. He is a founder and Managing Partner at Seygem Asset Management, and The Emerging Markets Contributor to CNBC. Seygem Asset Management focuses on investing throughout the global emerging markets asset class. With a view that emerging and developing economies will continue to outpace the economic growth and advancement of developed economies, Seymour has devoted a career to investing in the dominant markets of tomorrow, today. Seymour’s career has included significant experience in both alternative asset management (hedge funds) and capital markets, having launched two hedge funds, and built the largest Russian broker dealer in the USA. Seymour started his career at UBS, focusing on international credit (cash, swaps, forex) in a specialized hedge fund group (New York). Seymour completed the firm’s training program after graduating with an MBA in international finance from Fordham University. Seymour received his undergraduate degree at Georgetown University.

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