DJ Forex Focus
The SNB Will Be Back. By Nicholas Hastings
The currency market hasn't seen the last of the Swiss National Bank, or its proxy the Bank for International Settlements.
The aggressive intervention by the central bank Wednesday and Thursday proved that the Swiss authorities are committed not only to stopping the franc's rise against the euro but also halting the currency's advance against the dollar.
The fact that the franc has remained weak since the exercise shows that the market is aware of this and will be cautious.
Nevertheless, this state of affairs may not last long.
Either currency speculators will once again attempt to test the SNB's resolve and push the euro back down towards the apparent line in the sand at CHF1.50 or the SNB itself will try to push the franc even lower than where it is now as the need to battle deflationary forces in the Swiss economy becomes more urgent.
As the latest KOF survey due later Friday is expected to show, the main business sentiment index will have improved a little to -1.72 from -1.86 but it still remains firmly in negative territory and the Swiss economy remains a mess.
Remember, the SNB has been trying to get the franc down since March, when it launched its first intervention exercise.
Its actions this week indicate that the central bank is no longer prepared to wait for the franc to fall.
Not only has the Swiss currency remained firm against the euro in recent weeks but it was risen against the dollar - pushing the franc's trade-weighted index back up to the level it was at before the March exercise.
The aggressive nature of the SNB's move this week has certainly given the central bank credibility in the currency markets.
However, the urgency with which the bank has waded into the market has raised the question of whether the authorities are now just as concerned about lowering the franc against the dollar, as they are about lowering the franc against the euro, given that Switzerland's trade with both the U.S. as well as Asia is denominated in the U.S. currency.
"We believe the SNB accepts that Switzerland's best prospects for an export recovery come from Asia and the U.S.," said Credit Suisse in its post-intervention research.
If so, then the Swiss National Bank could become an even more frequent visitor in the currency markets - as it attempts to push the franc even lower and ensure that Swiss exports remain attractive in a global economy that is only very gradually starting to climb out of recession.
Early Friday in Europe, the euro was hardly moved, trading at CHF1.5315 by 0645 GMT compared with CHF1.5313 late Thursday in New York.
Click Image to Enlarge
An improvement in risk appetite, encouraged by a rally in crude oil prices, helped to boost the euro, which rose to $1.4040 from $1.3908 and to Y134.81 from Y134.01.
The dollar was also up at Y96.01 from Y95.86 as the price of crude futures on the New York mercantile Exchange rose 64 cents from New York's close to a$70.97 a barrel.
The aggressive intervention by the central bank Wednesday and Thursday proved that the Swiss authorities are committed not only to stopping the franc's rise against the euro but also halting the currency's advance against the dollar.
The fact that the franc has remained weak since the exercise shows that the market is aware of this and will be cautious.
Nevertheless, this state of affairs may not last long.
Either currency speculators will once again attempt to test the SNB's resolve and push the euro back down towards the apparent line in the sand at CHF1.50 or the SNB itself will try to push the franc even lower than where it is now as the need to battle deflationary forces in the Swiss economy becomes more urgent.
As the latest KOF survey due later Friday is expected to show, the main business sentiment index will have improved a little to -1.72 from -1.86 but it still remains firmly in negative territory and the Swiss economy remains a mess.
Remember, the SNB has been trying to get the franc down since March, when it launched its first intervention exercise.
Its actions this week indicate that the central bank is no longer prepared to wait for the franc to fall.
Not only has the Swiss currency remained firm against the euro in recent weeks but it was risen against the dollar - pushing the franc's trade-weighted index back up to the level it was at before the March exercise.
The aggressive nature of the SNB's move this week has certainly given the central bank credibility in the currency markets.
However, the urgency with which the bank has waded into the market has raised the question of whether the authorities are now just as concerned about lowering the franc against the dollar, as they are about lowering the franc against the euro, given that Switzerland's trade with both the U.S. as well as Asia is denominated in the U.S. currency.
"We believe the SNB accepts that Switzerland's best prospects for an export recovery come from Asia and the U.S.," said Credit Suisse in its post-intervention research.
If so, then the Swiss National Bank could become an even more frequent visitor in the currency markets - as it attempts to push the franc even lower and ensure that Swiss exports remain attractive in a global economy that is only very gradually starting to climb out of recession.
Early Friday in Europe, the euro was hardly moved, trading at CHF1.5315 by 0645 GMT compared with CHF1.5313 late Thursday in New York.
Click Image to Enlarge
An improvement in risk appetite, encouraged by a rally in crude oil prices, helped to boost the euro, which rose to $1.4040 from $1.3908 and to Y134.81 from Y134.01.
The dollar was also up at Y96.01 from Y95.86 as the price of crude futures on the New York mercantile Exchange rose 64 cents from New York's close to a$70.97 a barrel.
26 June | 
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