Swiss National Bank May Have Had Enough With ECB’s Full-Blown Money Printing — Analyst Note The Swiss francs-euro exchange soared from yesterday close at 0.83270 euro per Swiss francs to an intra-day high of 1.04425 euro per Swiss francs today, or almost 20%, as the Swiss National Bank (SNB) decided to discontinue its three-year minimum exchange rate of 1.20 Swiss francs per euro, citing the Swiss franc is still high but no longer overvalued. The SNB also cut the interest rate on sight deposits to –0.75% Gold prices surged to an intra-day high of U.S. $1267.20 per ounce while the U.S. 10-year Treasury yield sunk to an intra-day low of 1.79% as hedge fund managers sold euros and bought gold and U.S. Treasuries as “Safe-Haven” trades. The U.S. dollar index printed at 92.75, the highest reading since December 2005. The euro-dollar exchange rate nose-dived to a new multi-year low at 1.1569 dollars per euro. The SNB is making a risky move by letting the Swiss franc rise in value, relative to the currencies of its trading partners, as Switzerland’s December inflation rate dropped more than expected to its lowest level in more than a year. The surge in the Swiss francs-euro exchange rate will make goods and services imported from Switzerlands main trading partners, which are the European Union members, less expensive. Switzerland imports about 80% of its goods and services from the EU while exporting about 60% back to the EU. Generally, currency appreciation is likely to contribute to deflationary pressures because of lower import prices and falling demand for exports. The SNB is concerned that if the European Central Bank (ECB) launches a full-blown quantitative easing scheme, as early as next Thursday, the euro would continue to weaken further. According to the SNB statement, “The euro has depreciated considerably against the U.S. dollar and this, in turn, has caused the Swiss franc to weaken against the U.S. dollar.” Since the SNB no longer needs to buy up the euro to maintain the peg, and “sterilize the buys by taking in the Swiss francs from the economy, Swiss francs could become attractive again as a safe haven currency without raising interest rates.
Posted on: Thu, 15 Jan 2015 21:16:15 +0000
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