Switzerland’s central bank has introduced a negative deposit rate to help it maintain its currency ceiling of SFr1.2 per euro, after the recent market turmoil spurred demand for safe assets and put the exchange rate.
The Swiss National Bank first introduced the ceiling in the middle of the eurozone crisis, which triggered immense inflows into what is considered one of the world’s safest harbours for money, and ramped up pressure on the Swiss franc.
The SNB’s move to introduce in effect a 0.25 per cent tax on sight deposit account balances held with the institution was motivated explicitly by a desire to make it less attractive to hold Swiss franc investments.
The decision sent the Swiss franc falling 0.6 per cent versus the euro to 1.20794, after having tested the 1.20 ceiling in recent weeks.
Main feature was always going to be the BOE Inflation Report and so it proved…
CPI seen above its 2% target for a while yet
CPI risks broadly balanced at the end of December
GDP seen at 1.9% yy in 2 years time
MPC will maintain accommodative stance despite CPI above target
Supply reforms needed and stimulus for overseas buyers for UK exports
With the last two comments came a slam dunk of the Pound and support levels trashed all the way down to key area around 1.5540.. Seen some bounce since then but sellers on the rally understandably. EURGBP got bought by UK clearer for €4+ billion for reported M&A needs.
EURUSD has seen large sell interest at 1.3500 just taken out to test next resistance around 1.3520
USDYEN had an early run down below 93.00 but found good buying in the dips and was soon travelling north again along with EURJPY. Talk of fund selling around 93.75 has put a cap on it for the moment. Russian Dep Fin Min comments that Yen has definitely been overvalued adding to Yen weakness prior.
EU/US free-trade talks to commence by June
Sweden leaves repo rate unchanged at 1% and sees no change this year
SNB to closely monitor over-heated housing market and will reassess/deactivate CCB as necessary.. Kind of put a base under USDCHF and EURCHF as it would help dampen CHF demand
ZURICH—Switzerland, for decades a paragon of safety in finance, is engaged in a high-risk strategy to protect its export-driven economy, literally betting the bank in a fight to contain the prices of Swiss products sold abroad.
The nation’s central bank is printing and selling as many Swiss francs as needed to keep its currency from climbing against the euro, wagering an amount approaching Switzerland’s total national output, and, in the process, turning from button-down conservative to the globe’s biggest risk-taker.
Switzerland’s virtue is the root of its problem: broad confidence in the Swiss currency and economy has investors hungry for francs to escape euros, the currency of its shaky European neighbors. Such demand makes francs more expensive and, in turn, drives up the price of Swiss exports.
In the past three years, the Swiss National BankSNBN.EB +0.10% has printed francs to buy euros and other currencies in a swelling portfolio of foreign assets four times what it was at the beginning of 2010.
Nearly every major central bank is buying nontraditional assets to resurrect domestic economies in the wake of the worst global recession in 75 years. The U.S. Federal Reserve is buying mortgages; the European Central Bank is making unusually long loans to banks; and the Bank of Japan is buying real-estate investment funds. Read More
long-time investors, global macro funds and US investment banks are moving into gold and the Swiss franc again. The SNB had to buy euros and print new Swiss francs of around 5 billion francs last week, as today’s monetary data show.
There are still some FX traders who are convinced that the SNB will hike the floor to 1.22. Hence, currently both the SNB and these traders are short CHF. However, in order to balance the total trades, there must be some big accounts who are buying CHF.
We do not believe that the SNB moves the exchange rate secretly to 1.22, but they would do an official announcement. An announcement would be much cheaper for the central bank because many FX traders would trade on behalf of the SNB and long-term investors would not pile into CHF as much as they currently do.
Moreover, a new floor would destroy some of the SNB credibility and risks of huge losses would increase.
The EUR/CHF is trading around 1.21, exactly between floor and rumor.
This week’s MoF intervention in the FX markets, while not quite unprecedented (trailblazer Hildebrand aside), was certainly sizable, surprising, and potentially sustained – no matter how many times we were told by Mr. Azumi that he was ‘watching’ closely. Our question, and one discussed in a Bloomberg story this evening, is it possible to change the course of USDJPY via intervention – and perhaps more presciently (given growing global interest in capitalist/Keynesian spending escalation), was the expected $512bn loss that the country faces on these FX positions alone worth it? Tohru Sasaki, of JPMorgan’s Global FX Strategy group, address his concerns at both the unilateralism and the worrying perspective that the Japanese might try to emulate the SNB – which he sees as almost impossible to achieve – especially since the ceiling on CHF leaves JPY and USD as the only anti-cyclical currencies.
“It’s difficult to change the trend of the currency market. Even if the action can stem the currency’s gains temporarily, the yen will eventually appreciate.”
We speculated yesterday on the coincidental ‘pegging’ style of the intervention yesterday both to CNY and USD (obviously intertwined) specific levels with the view that perhaps a slow and creeping anti-Bretton Woods broken Nash equilibrium was happening as currencies were getting ‘fixed’. Sasaki, of JPM, notes four reasons why this is unlikely to be successful/possible – although losing $512bn is always an incentive to double down? Read More
Jim Rogers was on CNBC earlier, discussing the recent intervention by the SNB and the overnight plunge in Europe, in the process generating yet another amusing episode of market “non-cheerleader” Bob Pisani attempting spin the global economic collapse in a favorable light on not one, not two but on three separate occasions, and being soundly rejected by the far more, informed shall we say, Rogers. Specifically, to Pisani’s repeated attempt to get Rogers to admit the uber-secret of which stocks he is long (CNBC Ponzi playbook 101), the former Quantumanite responds that not only is he not long anything, he is mostly short stocks and very much long commodities for two simpler reasons: “if the world economy gets better i’m going to make money in commodities because of shortages that are developing. Especially in agriculture and precious metals. If the world economy doesn’t get better, Bob, you’re not going to make any money in Toyota or IBM but you might make money in commodities because they’re going to print more money. It’s the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I’m short stocks but i don’t expect the world economy to get better. Not much better anyway, if it does and I am long commodities as a protection.” And on some other topic like the Chairsatan, “Bernanke has been lying to us again”, on the SNB intervention attempt: “This is a terrible mistake” and on what should happen to Europe: ” It would be good for the world, though, if they let people go bankrupt.”
The Swiss National Bank on Tuesday decided to set the minimum exchange rate for the Swiss franc as the current ‘massive overvaluation’ of the currency poses an acute threat to the economy and carries the risk of a deflationary development.
The central bank fixed the minimum rate at CHF 1.20 per euro. The SNB said it will enforce this minimum rate with the utmost determination and is also prepared to buy foreign currency in unlimited quantities.
Even at this minimum rate, the currency is still high and should continue to fall over time, the bank added. The SNB reiterated that it will take further measures if the economic outlook and deflationary risks so require.