SNB Not Off The Hook Yet. By Nicholas Hastings
For a little while back there, it looked as if the Swiss National Bank could retire from the battlefield.
The Swiss economy was improving, the euro was on the rise and the need for intervention to prevent a further advance in the Swiss franc was waning.
After having to defend the euro from falling under CHF1.50 three times already this year, it looked as if the SNB might finally be able to relax.
But that is no longer the case.
Economic data show that the Swiss recovery is not quite as robust as many had hoped. Retail sales figures earlier this week were disappointing and after a 0.3% contraction in the economy in the second quarter, the SNB itself now acknowledges that gross domestic product may not turn positive until the fourth quarter.
As a result, inflation pressures remain highly subdued. SNB Chairman Jean-Pierre Roth recently said that while inflation will eventually rise, there will be a "stabilization of the preservation of prices".
There was certainly no mention at this stage of the SNB starting to unravel its expansionary monetary policy.
This contrasts with a more hawkish mood in the euro zone. Although recovery there is proving nearly as elusive as it is in Switzerland, the European Central Bank is poised to start exiting its emergency funding program.
In fact, the final one-year ECB tender of cheap money on offer to European banks on Dec. 15-16 may well force the SNB back into the currency market again.
Research by Mansoor Mohi-uddin, chief currency strategist with UBS AG in London, showed that the three SNB interventions earlier this year coincided with previous ECB tenders. This is because euro-zone banks have borrowed heavily at the tenders in euros and then translated these funds into Swiss francs to help them fund their franc-denominated mortgages in Eastern Europe.
"This causes the franc to appreciate sharply and brings the SNB into the market to damp its rise," Mohi-uddin explained.
This could well be the last time the SNB needs to stop the euro from falling under CHF1.50, however.
The ECB has suggested that this will be its last emergency funding tender where such cheap money will be available to euro-zone banks for such a long period.
Also, by next year, the Swiss economy should be in better shape and the SNB should be able to relax, allowing the franc to rise without fear of damage to Swiss exporters.
Overnight, slipping equities dimmed risk appetite although the major currency pairs kept to tight ranges ahead of a long weekend for Japan and next week's shortened week for U.S. markets due to Thanksgiving.
Around 0820GMT the dollar fetched CHF 1.0140, up slightly from CHF 1.0129 in late U.s. trade Thursday while the Euro was unchanged at CHF 1.5120. The dollar was unchanged against the Euro at $1.4920, slight weaker against the JPY at Y88.81 from Y88.98 while the pound was down at $1.6630 from $1.6663 in late U.S. trade Thursday.
The Swiss economy was improving, the euro was on the rise and the need for intervention to prevent a further advance in the Swiss franc was waning.
After having to defend the euro from falling under CHF1.50 three times already this year, it looked as if the SNB might finally be able to relax.
But that is no longer the case.
Economic data show that the Swiss recovery is not quite as robust as many had hoped. Retail sales figures earlier this week were disappointing and after a 0.3% contraction in the economy in the second quarter, the SNB itself now acknowledges that gross domestic product may not turn positive until the fourth quarter.
As a result, inflation pressures remain highly subdued. SNB Chairman Jean-Pierre Roth recently said that while inflation will eventually rise, there will be a "stabilization of the preservation of prices".
There was certainly no mention at this stage of the SNB starting to unravel its expansionary monetary policy.
This contrasts with a more hawkish mood in the euro zone. Although recovery there is proving nearly as elusive as it is in Switzerland, the European Central Bank is poised to start exiting its emergency funding program.
In fact, the final one-year ECB tender of cheap money on offer to European banks on Dec. 15-16 may well force the SNB back into the currency market again.
Research by Mansoor Mohi-uddin, chief currency strategist with UBS AG in London, showed that the three SNB interventions earlier this year coincided with previous ECB tenders. This is because euro-zone banks have borrowed heavily at the tenders in euros and then translated these funds into Swiss francs to help them fund their franc-denominated mortgages in Eastern Europe.
"This causes the franc to appreciate sharply and brings the SNB into the market to damp its rise," Mohi-uddin explained.
This could well be the last time the SNB needs to stop the euro from falling under CHF1.50, however.
The ECB has suggested that this will be its last emergency funding tender where such cheap money will be available to euro-zone banks for such a long period.
Also, by next year, the Swiss economy should be in better shape and the SNB should be able to relax, allowing the franc to rise without fear of damage to Swiss exporters.
Overnight, slipping equities dimmed risk appetite although the major currency pairs kept to tight ranges ahead of a long weekend for Japan and next week's shortened week for U.S. markets due to Thanksgiving.
Around 0820GMT the dollar fetched CHF 1.0140, up slightly from CHF 1.0129 in late U.s. trade Thursday while the Euro was unchanged at CHF 1.5120. The dollar was unchanged against the Euro at $1.4920, slight weaker against the JPY at Y88.81 from Y88.98 while the pound was down at $1.6630 from $1.6663 in late U.S. trade Thursday.
- 20 November |
- 0 comments
Post new comment