SNB Is Slowly Easing Reins On The Swiss Franc. By Nicholas Hastings
The Swiss National Bank is finally letting go of the Swiss franc.
Yes, the bank may still jerk the currency's reins through intervention if the franc starts to rise too rapidly.
And yes, expect SNB directors, as President Philipp Hildebrand did this week, to continue to remind us that SNB intervention is still possible.
But the days of the SNB defending a line in the sand are now essentially over, as we have already seen this month.
Despite market expectations, the SNB failed to defend the euro at CHF1.47, then 1.46 and then 1.45, clearing the way for the single currency to fall to a new record low on Wednesday down at 1.4232.
See the euro's decline against the franc:
This shift in SNB policy is hardly surprising.
First of all, the Swiss economy can afford a stronger franc, something it couldn't really do a year ago when the SNB first launched its intervention to stop the currency from rising.
In fact, with Swiss growth picking up even more rapidly than anticipated and with recent data showing that the recovery in Switzerland's major trading partner, the euro zone, accelerating even faster than the optimists had hoped, the SNB may well consider the franc's recent rally as a welcome form of monetary tightening.
The timing of this could also be fortuitous.
So far, Switzerland has escaped any overt criticism of its currency intervention--a currency policy that most other major Western nations have eschewed in recent years.
However, this could change next month when the U.S. publishes its humiliating list of so-called "currency manipulators."
According to a study by Sue Trinh, a currency strategist with RBC Capital Markets in Sydney, Switzerland is probably well ahead of China in terms of the technical scores needed to make the list.
If so, the U.S. can hardly threaten China over its unfair trade practices without also pointing at Switzerland's recent efforts to promote its exports.
There are two other reasons why the SNB might find that retiring from the market now might be appropriate--downward pressures on the euro could well intensify as the euro zone's deficit problems increase and the SNB could well find its intervention policy less effective.
Expectations of more downward pressure on the euro are spreading as the European Union shows little sign of reaching an early agreement on resolving Greece's debt dilemma.
Wednesday's decision by Fitch to downgrade Portugal's credit rating has only made matters worse, with analysts warning that failure by an EU summit at the end of this week to produce some credible proposal on Greece could trigger another nasty fall in the single currency.
In the meantime, the SNB has discovered that its influence is ebbing away. Recent attempts to intervene in the market have failed to push the euro up anywhere as much they did when the SNB started this exercise last March.
And, as Hildebrand discovered this week, his attempts at verbal intervention--warning that the SNB is still prepared to intervene--are of even less consequence. Comments like that may still inject some fear into franc buyers and help to slow the currency's advance, but there is little sign that there is anything the SNB can do to halt the franc from heading even higher now.
Early Thursday in Europe, the euro eased to CHF1.4273 from CHF1.4295 late on Wednesday in New York, according to EBS.
The single currency was lower in most places as investors position themselves ahead of the summit meeting of European leaders starting in Brussels on Thursday in case they come up with some surprise package for rescuing Greece from its debt problems.
After an early fall to $1.3284, the euro bounced back to trade at $1.3329, compared with $1.3324 in New York. The euro was also down at Y122.51 from Y122.77 while the dollar fell to Y91.88 from Y92.14 as investors continued to show interest in safe havens.
Yes, the bank may still jerk the currency's reins through intervention if the franc starts to rise too rapidly.
And yes, expect SNB directors, as President Philipp Hildebrand did this week, to continue to remind us that SNB intervention is still possible.
But the days of the SNB defending a line in the sand are now essentially over, as we have already seen this month.
Despite market expectations, the SNB failed to defend the euro at CHF1.47, then 1.46 and then 1.45, clearing the way for the single currency to fall to a new record low on Wednesday down at 1.4232.
See the euro's decline against the franc:
This shift in SNB policy is hardly surprising.
First of all, the Swiss economy can afford a stronger franc, something it couldn't really do a year ago when the SNB first launched its intervention to stop the currency from rising.
In fact, with Swiss growth picking up even more rapidly than anticipated and with recent data showing that the recovery in Switzerland's major trading partner, the euro zone, accelerating even faster than the optimists had hoped, the SNB may well consider the franc's recent rally as a welcome form of monetary tightening.
The timing of this could also be fortuitous.
So far, Switzerland has escaped any overt criticism of its currency intervention--a currency policy that most other major Western nations have eschewed in recent years.
However, this could change next month when the U.S. publishes its humiliating list of so-called "currency manipulators."
According to a study by Sue Trinh, a currency strategist with RBC Capital Markets in Sydney, Switzerland is probably well ahead of China in terms of the technical scores needed to make the list.
If so, the U.S. can hardly threaten China over its unfair trade practices without also pointing at Switzerland's recent efforts to promote its exports.
There are two other reasons why the SNB might find that retiring from the market now might be appropriate--downward pressures on the euro could well intensify as the euro zone's deficit problems increase and the SNB could well find its intervention policy less effective.
Expectations of more downward pressure on the euro are spreading as the European Union shows little sign of reaching an early agreement on resolving Greece's debt dilemma.
Wednesday's decision by Fitch to downgrade Portugal's credit rating has only made matters worse, with analysts warning that failure by an EU summit at the end of this week to produce some credible proposal on Greece could trigger another nasty fall in the single currency.
In the meantime, the SNB has discovered that its influence is ebbing away. Recent attempts to intervene in the market have failed to push the euro up anywhere as much they did when the SNB started this exercise last March.
And, as Hildebrand discovered this week, his attempts at verbal intervention--warning that the SNB is still prepared to intervene--are of even less consequence. Comments like that may still inject some fear into franc buyers and help to slow the currency's advance, but there is little sign that there is anything the SNB can do to halt the franc from heading even higher now.
Early Thursday in Europe, the euro eased to CHF1.4273 from CHF1.4295 late on Wednesday in New York, according to EBS.
The single currency was lower in most places as investors position themselves ahead of the summit meeting of European leaders starting in Brussels on Thursday in case they come up with some surprise package for rescuing Greece from its debt problems.
After an early fall to $1.3284, the euro bounced back to trade at $1.3329, compared with $1.3324 in New York. The euro was also down at Y122.51 from Y122.77 while the dollar fell to Y91.88 from Y92.14 as investors continued to show interest in safe havens.
- 25 March |
- 0 comments
Post new comment