Swiss Remains Under Intervention Threat. By Nicholas Hastings
The Swiss economy may by picking up but that brings with it the imminent threat of intervention from the Swiss National Bank.
Over the last week or two, the franc has found itself back in favor as doubts over the global recovery have risen and safe havens have returned to favor.
Investor buying has pushed the Swiss currency back up to levels against the euro, around CHF1.51 to the single currency, where the Swiss National Bank has previously expressed its displeasure.
Other countries, such as Australia, are showing a more relaxed attitude towards currency strength now that their economies are showing signs of an upturn.
In terms of the good economic news, Switzerland is little different.
Data over the last few weeks has steadily improved. Swiss retail sales and the Swiss ZEW business sentiment survey this week have only confirmed optimism that the recession is coming to an end.
Even the latest trade numbers are positive. A rise in imports between July and June suggests that domestic demand is improving. At the same time, an increase in exports on the month suggests that the level of the franc against other currencies isn't an impediment for Swiss manufacturers.
However, for the Swiss National bank, there is another more pressing concern that many other countries don't have - deflation.
Although there are now signs that the Swiss economy has bottomed out, the latest consumer price index shows a year-on-year fall of 1.2%, a far cry from the 2.6% increase back in November.
Neil Mellor, a senior currency strategist with Bank of New York Mellon in London, summed up the SNB's dilemma: "The SNB cannot afford to drop its guard against the threat of deflation, and with the longevity of the ongoing global recovery far from assured, the bank may, if anything, be inclined to raise the ante to insure against the 'psychological' threat of deflation that a renewed phase of [economic] weakening would only serve to exacerbate."
The Swiss government's decision to sell its 9% stake in UBS back into the market will only make the SNB even more vigilant. The sale of about CHF5.5 billion of shares could well attract foreign buyers, who would increase upward pressure on the franc.
Given increased speculation that the SNB will wade into the market before too long, it isn't surprising that strategists, such as those at Commerzbank, are recommending that their clients start buying into the euro against the franc around now.
In Asia Friday euro/swiss fell to a fresh one month low of CHF1.5136 as stocks faltered and the market moved into the safety trades such as long swiss franc and the japanese yen.
Around 0630 GMT the euro fetched CHF1.5146 while the dollar is worth CHF1.0648 from CHF1.0635 in late New York trade Thursday. The euro is worth $1.4226, down from $1.4247 late Thursday and the pound fetches $1.6450 down from $1.6501. The greenback is worth Y93.70, down from Y94.16 late Thursday but up from a fresh one month low of Y93.47 seen in Asia trade Friday.
Over the last week or two, the franc has found itself back in favor as doubts over the global recovery have risen and safe havens have returned to favor.
Investor buying has pushed the Swiss currency back up to levels against the euro, around CHF1.51 to the single currency, where the Swiss National Bank has previously expressed its displeasure.
Other countries, such as Australia, are showing a more relaxed attitude towards currency strength now that their economies are showing signs of an upturn.
In terms of the good economic news, Switzerland is little different.
Data over the last few weeks has steadily improved. Swiss retail sales and the Swiss ZEW business sentiment survey this week have only confirmed optimism that the recession is coming to an end.
Even the latest trade numbers are positive. A rise in imports between July and June suggests that domestic demand is improving. At the same time, an increase in exports on the month suggests that the level of the franc against other currencies isn't an impediment for Swiss manufacturers.
However, for the Swiss National bank, there is another more pressing concern that many other countries don't have - deflation.
Although there are now signs that the Swiss economy has bottomed out, the latest consumer price index shows a year-on-year fall of 1.2%, a far cry from the 2.6% increase back in November.
Neil Mellor, a senior currency strategist with Bank of New York Mellon in London, summed up the SNB's dilemma: "The SNB cannot afford to drop its guard against the threat of deflation, and with the longevity of the ongoing global recovery far from assured, the bank may, if anything, be inclined to raise the ante to insure against the 'psychological' threat of deflation that a renewed phase of [economic] weakening would only serve to exacerbate."
The Swiss government's decision to sell its 9% stake in UBS back into the market will only make the SNB even more vigilant. The sale of about CHF5.5 billion of shares could well attract foreign buyers, who would increase upward pressure on the franc.
Given increased speculation that the SNB will wade into the market before too long, it isn't surprising that strategists, such as those at Commerzbank, are recommending that their clients start buying into the euro against the franc around now.
In Asia Friday euro/swiss fell to a fresh one month low of CHF1.5136 as stocks faltered and the market moved into the safety trades such as long swiss franc and the japanese yen.
Around 0630 GMT the euro fetched CHF1.5146 while the dollar is worth CHF1.0648 from CHF1.0635 in late New York trade Thursday. The euro is worth $1.4226, down from $1.4247 late Thursday and the pound fetches $1.6450 down from $1.6501. The greenback is worth Y93.70, down from Y94.16 late Thursday but up from a fresh one month low of Y93.47 seen in Asia trade Friday.
- 21 August |
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