Euro/Swiss Will Just Keep On Sliding. By Nicholas Hastings
Look for more record highs in the Swiss franc against the euro.
Safe haven buying of the Swiss currency is showing little sign of waning as global recovery worries increase.
At the same time, though, the risk of Swiss National Bank intervention to stop the franc's rise is starting to fade. For now, the market remains highly nervous about pushing the franc too far in case the SNB steps in.
After pushing the euro down to a new record low of CHF1.2973 early Wednesday, investors have stepped back, letting the single currency bounce back over CHF1.30.
See the euro's latest performance against the Swiss franc:
However, they are likely to become bolder in coming days, especially if the SNB remains silent about its intentions and if new Swiss data continues to show strong growth, rising inflation and healthy exports.
UBS reckons that current levels for the euro against the franc are the "new normal," reflecting the Swiss currency's safe haven status as well as its strong economic fundamentals. Over at Societe Generale, forecasts are for the euro to fall as far as CHF1.25.
This is a long way from the view that prevailed for much of the last 18 months or so, as the Swiss central bank struggled to halt the franc's advance. Repeated intervention, aimed at preventing deflation, failed to stop the euro from sliding from well over CHF1.50.
Despite some respite earlier this summer, when the euro was able to rise close to CHF1.40, the single currency has come under pressure again amid worries over the global economic recovery and fears of a double dip recession.
A general investor move out of risky assets markets have put safe havens, such as the franc, back at the top of the "buy list."
But, as the UBS "new normal" tag suggests, the Swiss economy is strong enough to withstand more franc strength this time around.
Not only is the latest KOF survey, due Friday, expected to show a further improvement in sentiment but second quarter GDP numbers and the new consumer price index next week should confirm that the economy is still growing and that inflation, rather than deflation, could now be a problem.
As the SNB President Philipp Hildebrand made it clear late last week, deflation is now longer the problem it once was for Switzerland.
The SNB, meanwhile, is probably only too happy to step back from the markets.
Figures from the central bank last month showed a paper loss of about $9.5 billion because of interventions. The loss, calculated when the euro was between CHF1.33 and CHF1.34, is only likely to have grown even more now that the euro is down close to CHF1.30.
So as long as the franc's advance against the euro doesn't show any signs of accelerating in a disorderly manner, the SNB will more likely remain on the sidelines as the exchange rates adjust to new realities.
Early Thursday recovery in global risk sentiment helped the euro to continue its bounce back against the franc, with the single currency rising to CHF1.3090 by 0645 GMT from CHF1.3023.
The euro was also up, at $1.2700 from $1.2655 as Asian stocks staged a small rally despite Wednesday's disappointing new home sales and durable goods orders from the U.S.
The euro was also up, at Y107.62 from Y107.20 and the dollar was up a tad at Y84.73 from Y84.70 as the market continued to speculate on when the Japanese authorities will move to halt the yen's advance.
Sentiment towards the euro was helped by the latest German Gfk survey of consumer sentiment, which rose a little to 4.1 for September from 4.0 in August.
Safe haven buying of the Swiss currency is showing little sign of waning as global recovery worries increase.
At the same time, though, the risk of Swiss National Bank intervention to stop the franc's rise is starting to fade. For now, the market remains highly nervous about pushing the franc too far in case the SNB steps in.
After pushing the euro down to a new record low of CHF1.2973 early Wednesday, investors have stepped back, letting the single currency bounce back over CHF1.30.
See the euro's latest performance against the Swiss franc:
However, they are likely to become bolder in coming days, especially if the SNB remains silent about its intentions and if new Swiss data continues to show strong growth, rising inflation and healthy exports.
UBS reckons that current levels for the euro against the franc are the "new normal," reflecting the Swiss currency's safe haven status as well as its strong economic fundamentals. Over at Societe Generale, forecasts are for the euro to fall as far as CHF1.25.
This is a long way from the view that prevailed for much of the last 18 months or so, as the Swiss central bank struggled to halt the franc's advance. Repeated intervention, aimed at preventing deflation, failed to stop the euro from sliding from well over CHF1.50.
Despite some respite earlier this summer, when the euro was able to rise close to CHF1.40, the single currency has come under pressure again amid worries over the global economic recovery and fears of a double dip recession.
A general investor move out of risky assets markets have put safe havens, such as the franc, back at the top of the "buy list."
But, as the UBS "new normal" tag suggests, the Swiss economy is strong enough to withstand more franc strength this time around.
Not only is the latest KOF survey, due Friday, expected to show a further improvement in sentiment but second quarter GDP numbers and the new consumer price index next week should confirm that the economy is still growing and that inflation, rather than deflation, could now be a problem.
As the SNB President Philipp Hildebrand made it clear late last week, deflation is now longer the problem it once was for Switzerland.
The SNB, meanwhile, is probably only too happy to step back from the markets.
Figures from the central bank last month showed a paper loss of about $9.5 billion because of interventions. The loss, calculated when the euro was between CHF1.33 and CHF1.34, is only likely to have grown even more now that the euro is down close to CHF1.30.
So as long as the franc's advance against the euro doesn't show any signs of accelerating in a disorderly manner, the SNB will more likely remain on the sidelines as the exchange rates adjust to new realities.
Early Thursday recovery in global risk sentiment helped the euro to continue its bounce back against the franc, with the single currency rising to CHF1.3090 by 0645 GMT from CHF1.3023.
The euro was also up, at $1.2700 from $1.2655 as Asian stocks staged a small rally despite Wednesday's disappointing new home sales and durable goods orders from the U.S.
The euro was also up, at Y107.62 from Y107.20 and the dollar was up a tad at Y84.73 from Y84.70 as the market continued to speculate on when the Japanese authorities will move to halt the yen's advance.
Sentiment towards the euro was helped by the latest German Gfk survey of consumer sentiment, which rose a little to 4.1 for September from 4.0 in August.
Bloomberg TNI FRX POV
Reuters USD/DJ
Thomson P/1066 or P/1074
(Nick Hastings has covered the foreign exchange markets and industry for over 20 years. Apart from his written commentary and analysis, he also appears on Fox Business News and CNBC television in Europe, Asia and the U.S. He can be contacted on +44-20-7842-9493 or by email: nick.hastings@dowjones.com)
- 26 August |
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