Gold, Myrrh and the Confoederatio Helvetica Franc

Posted by Izabella Kaminskaon Jun 16 09:52.

The Swiss National Bank kept interest rates unchanged as expected on Thursday, saying it would leave the target rate for three-month Libor at 0.0-0.75 per cent, ideally at the lower range of around 0.25 per cent.

But comments from the SNB’s monetary committee revealed an increasing level of concern about the strength of the Swiss franc. What’s fast becoming the new de facto risk-free currency of the world — as good as gold, according to some — has been on a tear since at least April this year.

The question everyone is wondering though is whether the Swiss can handle the prominent positioning in the FX market, and naturally whether the currency’s float is big enough to deal with the accolade.

Unfortunately, arguably, it is not.

Indeed, as Reuters reported on Thursday the monetary policy committee is still coming to terms with how to deal with the stagnant rock and deflationary hard place it is up against thanks to its soaring national currency:

HILDEBRAND SAYS SNB CONCERNED ABOUT EXCHANGE RATE DEVELOPMENTS

SNB’S DANTHINE SAYS SELLING FOREX RESERVES FOR SWISS FRANCS NOT OPTION AT MONENT

SNB’S DANTHINE – MON POL CONSIDERATIONS TO CONTINUE TO DICTATE FOREX RESERVE MANAGEMENT ACTIONS

Understandable given the EURCHF cross rate hit a fresh low of 1.1997 on Thursday:

Which comes against his sort of recent track record:

Intervention, of course, isn’t the obvious answer for the SNB. The central bank’s previous foray into the market showed the degree of momentum that was against it, no matter how much fresh supply was pumped into the money pool.

Though, it won’t just be the Swiss exporters feeling the FX pain. We can think of a number of dollar-exposed trading houses which, by now, might be wondering what the point of coming to Switzerland was at all.

Related links:
The Swiss franc is as good as gold (literally) – FT Alphaville
Swiss franc at historic high against dollar
– AFP

This entry was posted by Izabella Kaminska on Thursday, June 16th, 2011 at 9:52 and is filed under Capital markets. Tagged with , , , .

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