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The outlook for the US economy seems to have become more suspect over the last month. During that timeframe, however, a prevailing trend of general Dollar weakness over the third quarter of 2010 was cast aside. The turning point came earlier this month when the Federal Reserve’s Open Market Committee announced that they would use proceeds from maturing mortgage debt to buy Treasuries, well short of potential action that may have undertaken. There has been little indication from recent US economic numbers that these steps will be anywhere close to changing the outlook for the US economy. More likely than not, this will only be the first step in what will be more substantive activity in the future. While the Fed’s “wait and see” attitude towards US quantitative easing put a scare into global equity markets, it also removed the Dollar’s tendency to receive safe-haven support. Of the two currencies that have taken up the market’s flight to quality, the Yen has seen the larger move to the upside. With Japanese officials being hostile to this current Yen strength, however, it is conceivable that central bank intervention may turn any moderate pullback from 15-year highs into a full-scale meltdown.
A more suitable choice to benefit from an extended period of Dollar weakness would be the September Swiss. Unlike Japan, Switzerland’s economy has been comparatively strong over the past year with better conditions and a better outlook than many of its European neighbors. This has allowed it to receive safe haven support not only from the Dollar, but from any risk flare-ups within the Euro zone as well. Recent disclosures that the Swiss National Bank had taken heavy losses during their period of active currency intervention fed into the Dollar’s recent recovery, and sent the September Swiss back towards the lower end of this quarter’s trading range. The ability to limit these losses, as well as holding onto the large gains from the rally in June, are a strong indication of the upside potential for the September Swiss if the Dollar makes a return to this month’s lows.
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