Thursday, April 5, 2012

Swiss Franc in Focus

Forex traders are watching the Swiss franc this morning as Swiss CPI and the Swiss National Bank’s Foreign Currency Reserve data are out.  For those unfamiliar with trading the Swiss franc, the SNB has been aggressively intervening in the Forex markets and have placed a 1.2000 price floor in the EURCHF exchange rate.  The move was geared to protect Swiss exporters that are negatively impacted by a stronger franc. 

Even with the existence of central bank intervention and potential for a higher price floor, the EURCHF has been falling back to the 1.2000 level.  Causing the move has been the natural supply/demand flow of the general public continuing to trade in Euros for francs.  Looking ahead to today’s data, the key figure towards what the SNB may do in the future is the CPI figure.  The SNB has stated that risks of their intervention actions have been limited due to the presence of low inflation.  Therefore, if the Swiss CPI number do move higher, pressure on the SNB will increase as they will need to maneuver keeping both the Swiss economy stable and keeping the lid on inflation.

More on the SNB’s “Vow” to hold the EURCHF price floor from the WSJ:

Switzerland's central bank Thursday remained steadfast in its efforts to enforce its 1.20 Swiss-franc-per-euro ceiling and raised its 2012 growth forecast as the cap helps stabilize the Alpine country's economy.The Swiss National Bank also kept its target range for the three-month franc London interbank offered rate unchanged at 0% to 0.25% for a third straight quarter, it said in a statement after its regular policy review Thursday. The decision was widely expected by economists.The Zurich-based SNB reiterated it is ready to buy foreign currency in unlimited quantities to defend the minimum rate, and "will continue to maintain liquidity on the money market at an exceptionally high level."Policy makers still regard the franc as highly valued and "are ready to take further measures at any time if the economic outlook and the risk of deflation so require," it said.While the franc still presents "enormous challenges" to the Swiss economy, the CHF1.20 per euro cap implemented in September has reduced market volatility and given companies more planning security," the SNB said.  Read More

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