The SNB Should Be Able To Stand Down Now. By Nicholas Hastings
Relief may finally be on hand for the Swiss National Bank.
For the last five months the central bank has been on intervention alert, desperate to prevent the euro from falling back under CHF1.50 and damaging Switzerland's export recovery.
Apart from a constant stream of verbal warnings, the central bank has had to wade into the market at least twice - selling its own currency to scare speculators away.
Indications are, however, that the SNB may soon be able to stand down.
Over the last week or two, yield spreads have widened in favor of the euro and optimism over the global recovery has improved gradually, removing some of the upward pressure on the safe-haven Swiss currency.
As a result, currency forecasters are now suggesting that the euro could well rebound to levels around CHF1.5450 rather than test the SNB's mettle again with a fall towards CHF1.50.
Click Image to Enlarge
Some analysts, such as those at Citigroup, are recommending going short the franc against the Norwegian krone to take advantage of the overall rise in global risk appetite.
"Given that investors appear to be overweight Swiss franc and underweight the Norwegian krone, positioning looks conducive to declines in the franc/krone," said Todd Elmer, one of the bank's currency strategists in New York.
Traditionally, the franc has benefited in times of high risk aversion as investors seek out asset markets they consider safe, despite the overall concerns about the Swiss economy itself.
Although risk appetite could well fall again in the near term, the overall trend has been for an improvement with major economies such as U.S. and particularly Australia appearing on the brink of recovery from the current recession.
This optimism was reinforced over the last week or two as good second-quarter earnings triggered a strong rally in global stocks.
All the same, the outlook for Switzerland remains highly uncertain. The latest Swiss Kof index due Friday could well reinforce this gloom, ensuring that the SNB keeps Swiss interest rates down at record lows.
It is just this that is helping to drive the euro higher as yield spreads with the euro zone widen to reflect greater optimism over the euro zone recovery.
In the past, the yield spread between these two has been closely correlated with the performance of the euro against the franc, suggesting more gains in the single currency are on their way.
For its part, the SNB appears satisfied with its efforts so far with Thomas Jordan, a member of the governing board, saying that intervention had been successful and the bank is prepared to do more if needed.
Early Thursday in Europe, the euro rose to CHF1.5281 from CHF1.566 late Wednesday in New York, according to EBS.
A general rise in risk appetite, encouraged by a stronger performance in shares in both Japan and China, helped to lift some of the gloom over Wednesday's disappointing Treasury auction in the U.S.
The dollar was essentially flat at Y94.98 from Y95.01, while the euro rose to $1.4070 from $1.4034 and to Y133.70 from Y133.27.
For the last five months the central bank has been on intervention alert, desperate to prevent the euro from falling back under CHF1.50 and damaging Switzerland's export recovery.
Apart from a constant stream of verbal warnings, the central bank has had to wade into the market at least twice - selling its own currency to scare speculators away.
Indications are, however, that the SNB may soon be able to stand down.
Over the last week or two, yield spreads have widened in favor of the euro and optimism over the global recovery has improved gradually, removing some of the upward pressure on the safe-haven Swiss currency.
As a result, currency forecasters are now suggesting that the euro could well rebound to levels around CHF1.5450 rather than test the SNB's mettle again with a fall towards CHF1.50.
Click Image to Enlarge
Some analysts, such as those at Citigroup, are recommending going short the franc against the Norwegian krone to take advantage of the overall rise in global risk appetite.
"Given that investors appear to be overweight Swiss franc and underweight the Norwegian krone, positioning looks conducive to declines in the franc/krone," said Todd Elmer, one of the bank's currency strategists in New York.
Traditionally, the franc has benefited in times of high risk aversion as investors seek out asset markets they consider safe, despite the overall concerns about the Swiss economy itself.
Although risk appetite could well fall again in the near term, the overall trend has been for an improvement with major economies such as U.S. and particularly Australia appearing on the brink of recovery from the current recession.
This optimism was reinforced over the last week or two as good second-quarter earnings triggered a strong rally in global stocks.
All the same, the outlook for Switzerland remains highly uncertain. The latest Swiss Kof index due Friday could well reinforce this gloom, ensuring that the SNB keeps Swiss interest rates down at record lows.
It is just this that is helping to drive the euro higher as yield spreads with the euro zone widen to reflect greater optimism over the euro zone recovery.
In the past, the yield spread between these two has been closely correlated with the performance of the euro against the franc, suggesting more gains in the single currency are on their way.
For its part, the SNB appears satisfied with its efforts so far with Thomas Jordan, a member of the governing board, saying that intervention had been successful and the bank is prepared to do more if needed.
Early Thursday in Europe, the euro rose to CHF1.5281 from CHF1.566 late Wednesday in New York, according to EBS.
A general rise in risk appetite, encouraged by a stronger performance in shares in both Japan and China, helped to lift some of the gloom over Wednesday's disappointing Treasury auction in the U.S.
The dollar was essentially flat at Y94.98 from Y95.01, while the euro rose to $1.4070 from $1.4034 and to Y133.70 from Y133.27.
- 30 July |
- 0 comments
Post new comment