Swiss National Bank holds firm on EUR/CHF floor

Away from the wild speculation surrounding the US Federal Reserve’s meeting this evening and away from the strides being made in the eurozone, the Swiss National Bank gave its quarterly monetary policy assessment this morning. As expected, the SNB kept interest rates on hold in the 0-0.25% band. Slightly more interesting than this, however, was the SNB’s decision to reiterate its commitment to defending the EUR/CHF floor (or ceiling if you prefer to look at it that way) of 1.20.

Since the escalation of the eurozone debt crisis, the safe-haven franc attracted huge investment and the excessive appreciation that this caused was damaging to the Switzerland’s economy. In August 2011, the Swiss National Bank responded by intervening in the currency markets to weaken the franc (put simply, buying lots of euros and selling lots of francs). In September 2011, the SNB set a floor for the EUR/CHF exchange rate, pledging to use all the resources at its disposal not to allow the franc to strengthen past this point (below a rate of 1.20).

Since September 2011 then, any dip below the 1.20 threshold has been fleeting and marginal, but the market has certainly tested the SNB’s resolve. Central banks currency intervention is historically very unsuccessful and expensive, just ask the Bank of Japan. Up until now though, the SNB is doing a remarkably good job but only time will tell. 

Swiss National Bank's statement this morning has told us that they expect the Swiss economy to grow by 1.0% this year, down from the 1.5% growth they expected three months ago (though this is still a decent pace of growth). In addition, the SNB also sees consumer prices falling by 0.6%, more than initially expected, with inflation expectations for 2013 and 2104 also downgraded. 

In light of downgraded growth and inflation expectations, the SNB was quite clear on its on-going commitment to maintain the EUR/CHF floor this morning, stating that “If necessary, it stands ready to take any further measures at any time.” It’s not surprising either, the swiss franc remains overvalued. With near-term risks to Swiss growth high given the poor growth outlook for the eurozone economy, the SNB is likely to maintain its defensive stance in the medium term. However, talk of shifting the floor even higher up to 1.25 looks unlikely to be realised, as the SNB will probably view this as too risky. 

Richard Driver

Currency Analyst

Caxton FX

Dollar strength: Is it here to stay?

The pound has tumbled to a one year low against the dollar today. The pounds slide has been pretty staggering; we have seen GBP/USD fall from $1.65 to the current rate of $1.5350. Why?

The collapse is a result of several factors. First, sterling is fundamentally an immensely unappealing currency. The MPC last month voted in its entirety for a hold to the record low Bank of England interest rate of 0.5%, meaning the two remaining hawks had abandoned their quest for an interest rate hike. With inflation expected to fall fairly rapidly next year, and with UK growth clearly on a downtrend, the market has given any hopes of a higher UK interest rate. The recent MPC minutes reveal that they are very close indeed to pulling the trigger on introducing further quantitative easing.

Second, the euro/dollar pairing has collapsed. The GBP/USD rate to a large extent tracks the EUR/USD pairing, which has suffered a ten cent collapse in the past month. Concerns surrounding the eurozone debt crisis have finally taken their toll on the single currency with Greece seemingly certain to default at some point and with no long-term solution in sight. The UK’s proximity and exposure to a eurozone debt and a potential Lehman’s-style collapse in the European banking system, has also weighed on sterling and triggered huge euro-dollar flows.

Third, concerns over US and wider global growth have contributed to a hugely ‘risk off’ trading environment. Riskier currencies such as the Canadian, kiwi and Australian dollars are selling off as investors flee to the safety of the dollar. The huge losses in global equities that we are seeing will always benefit safe-havens such as the dollar. The fact that the US economy is in such a fragile state makes little difference, in fact the extent to which the world’s largest economy is struggling only intensifies the safe-haven flows which are benefiting the dollar.

Finally, the dollar is enjoying a greater share of the safe-haven pie. This is because the former safe-haven of choice, the swiss franc, has lost its appeal. The Swiss National Bank has intervened in the currency markets to curb the excessive strength of the swissie, so the market has been scared off. Though it has been unsuccessful in its interventions of late, the Bank of Japan nevertheless looks likely to take similar action to weaken the yen. USD/JPY is at record lows near 76.00, so the Bank of Japan’s patience is certainly being tested.

Do we see sterling making further losses to the dollar? Yes we do. There seems to be little on the horizon to fuel much of a sterling rebound. Contrastingly, fears over global growth look likely to persist. Likewise, the other major concern- the eurozone debt situation, looks unlikely see any significant progress in the near future. The outlook is very positive for the US dollar then, albeit the opposite is true for the US economy.

Richard Driver
Analyst – Caxton FX

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Swiss National Bank Gets Aggressive

The SNB announced this morning that it intends to keep the EUR/CHF rate at a minimum of 1.20 - this is the 'floor' which it will be defending. This direct intervention in the currency market caused the swiss franc to understandably sell off sharply across the board in response.

With the SNB recently warning the Swiss public that they would have to endure a strong swiss franc for the foreseeable future, there has been some market scepticism towards the SNB’s genuine commitment/ability to limit the currency’s strength. The SNB’s announcement this morning referred to “utmost determination” to containing further CHF appreciation, and it has had the desired effect; the 1.20 target was achieved in a matter of minutes.

Central bank currency intervention has failed repeatedly; we have seen it in both the yen and the swiss franc. It can slow the pace of appreciation, but it does not reverse the trend. Could this time be different? The SNB definitely looks serious this time, claiming willingness to buy “unlimited quantities of foreign currency.” Whether it is successful or not, it is likely to cost the SNB hugely.

The EUR/CHF target rate of 1.20 will almost certainly be tested by speculators and ongoing safe-haven flows alike. Concerns surrounding global growth and eurozone debt are not going anywhere, so demand for safer assets like the swissie will persist. Nonetheless, in the short-term, you can expect the SNB to stick to their task. There could be some further major moves in the offing as well, as other central banks respond.

Knee-jerk moves saw the EUR/CHF gain by 8.5% and the GBP/CHF by almost 8.0%; these are major moves. The effects have been felt throughout the currency markets though; GBP/EUR has declined fairly sharply as investors get out of the swissie and into the single currency.

Richard Driver
Analyst – Caxton FX
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Market Volatility Explained

The beginning of 2011 has thrown up a series of major market-moving events and we thought it’d be useful to take a closer look at the extent to which localised unrest and disasters can send shockwaves through the currency markets, and why. After all, how many of you would expect that the Norwegian Kroner will directly benefit from social uprisings in Bahrain? (Norway is a major oil producer, Middle Eastern tensions push oil prices up, Norway profits.)

Whilst the currency markets are more volatile than, for example the equity markets, in calmer times even currency movements can be relatively predictable. When the market spotlight is focused on economic fundamentals, data announcements have a direct impact and exchange rates are more faithful to trends. In early 2011, we saw sentiment governed by interest rate speculation and sterling benefited accordingly whilst the greenback suffered.

However, such factors are of little relevance to investors during times of uncertainty. Most recently the Japanese crisis, but before this the natural disasters in Australia and New Zealand, and unrest throughout the Middle East and North Africa, place traditional economic factors on the backburner. Long-term investors flee to the safety of currencies such as the Swiss franc, the US dollar and the Japanese yen. Short-term investors, or “speculators,” react so quickly to events that their movement is as unpredictable as the freak occurrences on which they base their currency “bets.”

Using the Swiss franc as an example, market volatility surrounding natural disasters is clearly visible in the context of the Japanese earthquake/tsunami/nuclear crisis, and is clearly visible. The “swissie” climbed 6 cents against the Australian dollar from 1.06 to 1.12 in the space of 3 days, having hovered around the 1.06 mark for the preceding three weeks. Investors abandon calculated risks on currencies such as the aussie, euro and sterling, and revert back to safety in such uncertain times leading to sharp appreciation of “safer” currencies such as the Swiss franc.

We can be confident that these times of heightened volatility will prove temporary. As events stabilise in states such as Bahrain and Japan the market’s will begin to calm down and factors such as interest rate differentials and growth potential will return to focus, bringing with them more predictable currency investments. However, amid soaring debt levels in eurozone peripheral countries, there may yet be another crisis round the corner unless the EU can reach a firm agreement at their Summit meeting next week.

Richard Driver
Analyst – Caxton FX


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And its the Swiss Franc coming up on the outside...

Whilst Japan continues to dominate the headlines we have seen the yen and dollar strengthen as the markets chase the solace of safe-haven currencies. However, there is one very well-performing currency that may have crept under your radar- the Swiss franc, A.K.A the Swissie. Due to Switzerland’s economic, political and fiscal stability, the franc represents the third major safe-haven currency. Indeed the swissie has today climbed to its highest point against the US dollar in at least 40 years and is rallying against all its major counterparts, which illustrates its increasing popularity in these times of extreme market uncertainty.
However, just as the Japanese government is determined not to let the yen appreciate too strongly, the Swiss National Bank (SNB) has showed willingness to intervene. The bank intervened last year when it considered the swissie to be overvalued, and it could do the same again if the soaring currency threatens the country’s economic growth, having stated last December that it would “take measures necessary to ensure price stability.”

The Swiss government are concerned about maintaining the strength of its export sector, but a closer look reveals that despite currency appreciation, its trade surplus actually widened last month. In addition, last year’s intervention was broadly unsuccessful (as intervening often is) and cost the SNB $25bn. In light of this, and amid a healthy economy, it seems unlikely that the SNB will act any time soon, though one has to wonder how far they will allow their currency to appreciate. This will surely come to the point if Swiss growth were to slow down and safe-haven appeal remain strong.

Against sterling, the swiss franc has gained 5% over the last month with the rate currently at 1.47. But there is certainly room for further gains with the rate still some way from the 1.44 levels seen at the end of 2010.

In other news, investors looking for higher yields might, ironically, look to Quantitative Easing, racing at Cheltenham Festival on Thursday, people say he has a licence to print money...

Richard Driver
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

An unexpected bounce in the euro’s step

A successful Spanish bond auction helped ease some concerns about the debt crisis plaguing the eurozone’s most indebted nations and finally gave the market some interest and direction.

The euro hit a one month high against the Swiss franc and regained some ground against most of its counterparts following the news. News last night that Germany’s principal, Angela Merkel, may be willing to extend the EU’s relief fund helped to put investors mind at ease and the bond auction went through without a problem. Both the Portuguese and Spanish auctions were concerns at the start of the week, helping to suppress the single currency. However, with the US dollar’s weakness late in the session yesterday and the news of the Iberian sales going well, the 17 nation currency has appreciated to €1.19 and €1.33 against the pound and greenback respectively.

The outlook for EUR remains to the downside in the medium term however. With no plan set in stone and Southern Europe’s debt snowballing, one set of bullish data from the US could turn everything back on it head.

In other news, Timothy Geithner once again called for the People’s Bank of China to allow the yuan to appreciate. Its artificially low value gives China an advantage over the rest of the export market and makes American goods less competitive. However, it seems highly unlikely that the world’s second largest economy would give up such a strong opportunity to hunt down the ailing world ‘no 1.’

Should China do what is best for them or the world economy? To comment on this or any part of the blog please write a comment below.

Tom Hampton
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Sterling is merely a spectator as the euro slumps against the US dollar

Despite worse than expected construction data from the UK, sterling has made gains against most of its major counterparts as it tracks the US dollar higher.

Positive employment data from the US and continuing fears about the eurozone debt crisis have sent the greenback higher with the pound hanging on to its coattails. A report showing that US companies created almost three times as many jobs in December than expected helped the US currency make its largest gains in almost three months. USD has recouped all losses made against the yen since new year’s eve and taken it back to pre-Christmas levels against the overinflated Swiss Franc.

Continuing issues in the eurozone will be the general theme for 2011 with a possible break-up of the single currency the most extreme prediction from some analysts (see this piece by Harry Wilson in The Telegraph). While this is unlikely, pressure from the stronger EU nations for a resolution could well lead to a state of greater fiscal union with Germany inevitably picking up the pieces.

Reading ‘Peston’s Picks’ from the BBC, I was interested to see his views on the Ipsos Mori survey published today. The survey outlines that FTSE 350 leaders are more upbeat about the start of 2011 than they were in 2010, despite heavy handed austerity measures. Mr Peston goes on to point out that despite muted optimism in early 2010, no one saw the collapse of Greece and Ireland (although according to this BBC piece his colleague James Robins, the BBC Diplomatic correspondent, did exactly that) . What will 2011 have in store for us?

In other news, further integration of China into the world economy took a leap forward as the World Bank has issued its first bond denominated in the Chinese yuan. The international lender could have plans afoot to make China its third largest stakeholder after the US and Japan.

And finally, pun’s about the state of the single currency reached fever pitch as Estonia has been enveloped into the EU’s economic bosom. Apparently, a cow in Tallinn, Estonia’s capital, offers an excellent exchange rate of one kroon to one euro, fifteen times better the actual exchange rate. Well, where there’s muck there’s brass! (sorry)
Tom Hampton
Analyst – Caxton FX
For the latest forex news and views, follow us on twitter @caxtonfx and sign up to our daily report.

Poor public finance data nudges sterling lower

Sterling took a step lower against the euro today and moved very slightly lower against the US dollar after UK data was released showing unexpectedly high public borrowing figures for November.

The Public Sector Net Borrowing Requirement result has called into question whether the government can meet its deficit-cutting target. The figure came in at almost £23billion in November, up from targets and last year’s figure of £17billion. The data, in conjunction with recent weak retail sales data, has shifted focus onto the state of the UK’s fragile recovery and its ability to grow in Q1 next year.

Despite this momentary blip, focus will undoubtedly return to the state of the EU and its debt crisis. Having had Ireland’s credit rating reduced to that of Trinidad & Tobago, Moody’s has now put Portugal on review for a possible (imminent) downgrade. Expect to see this saga continue throughout 2011.

In other news, the Swiss franc is continuing its bull charge as it smashes through all time highs against all of its major counterparts.

Tom Hampton
Analyst – Caxton FX

Downgrade risk hurts the euro

The euro is continuing to weaken on speculation European nations will struggle to raise funds after Ireland suffered a five notch credit downgrade.

Ireland’s repositioning just above ‘Junk status’ has sparked renewed concern over the future of other indebted nations in the eurozone. In response, the single currency depreciated against most of its major counterparts including a two week low against the US dollar and Japanese yen, as well a record low against the Swiss franc.

Sentiment is very bearish towards the sixteen nation currency with the prospect of further downgrades looming overhead before the long Christmas break. Whispers in the market point to even France being in the crosshairs of Moody’s et al as the cost to insure French government debt has trebled this year. The abundant credit warnings and increasing speculation over the spirally debt crisis have left the euro looking particularly vulnerable as we head into the new year.

Divisions within the European Central Bank are also not helping the situation. European finance ministers have ‘serious concerns’ that the Irish draft legislation to fix the banking system may threaten the ECB’s ability to run its liquidity operations.

In other news, the aussie dollar continues its run of good fortune as it hits a 25 year peak against the pound and the euro following the Irish downgrade.

Tom Hampton
Analyst – Caxton FX

This ain’t no currency war!

There has been a definite shift in sentiment towards ‘risk off’ as news that North and South Korea exchanged artillery fire last night, causing the US dollar, Swiss franc, and Japanese yen to appreciate.

The dollar rose against all of its major counterparts, bar the Swissie, as North Korea fired artillery shells into South Korea near the border. As the South Koreans retaliated, demand for refuge currencies increased and higher yielding assets took a knock. The euro, which is already struggling due to the Irish debt crisis and a renewed bout of political turmoil, has fallen about a cent and a half against the greenback (currently trading at a 7-week low). With further concerns about to rear their head over the state of the Greek economy (the government is threatening to shut down in order to save money), problems in Portugal and a tough global fourth quarter in full swing, we don’t envisage a turnaround in this euro downtrend remain for some time yet.

In addition, expect to see more volatile assets such as the aussie, kiwi and rand remain on the back foot as this period of political and economical uncertainty prevail. The Thanksgiving holiday in the US is yet a further reason for investors to place it safe as they head into a long weekend.

Tom Hampton
Analyst – Caxton FX

Sterling hits a high against the euro

Sterling rallied to its highest level in six weeks against the euro to hit €1.1641. However, further gains have been capped amid caution ahead of Wednesday’s inflation report from the Bank of England.

Early in the session, the euro’s losses deepened due to elevated concerns over a budget vote in Ireland causing 10 year bond yields to move above 8% yesterday. However, disappointing production and trade balance figures from the UK helped to stem the pounds gains.

Since the data, the pair have traded within a very tight range as investors wait for tomorrow’s report from the BoE, with the price hovering around the 1.16 level. It is highly unlikely to see a move much higher this afternoon and indeed a bout of profit taking could see the price ebb lower as we head into the later session.

Despite the UK’s consistently high inflation figures over the past few months, tomorrow’s report could have a deflationary effect on sterling as Mervyn King is notoriously dovish at these events.

In other news, anybody skiing this season will have a shock landing in Geneva airport as the Swiss franc continues to go from strength to strength. Over the past year, the swissie has seen some large gains and pull backs. The fact remains that the franc holds the most longevity as a safe haven investment going into a tricky Q4. You may want to think before you buy your sandwich at the airport, maybe wait until you reach the economic safety of the notoriously cheap French ski resorts!

Tom Hampton

Analyst – Caxton FX

Has Sterling bottomed out?

My screen is finally awash with green today as sterling pulls back some of its losses from the past few days against all of its major counterparts except the Swiss franc.

The pound is back up near €1.1750 against the euro having sunk to a four month low of €1.1672. Further doubt over the longevity of the European economic recovery spread as poor data showed growth in the eurozone slowed in September, causing peripheral bond yield spreads to widen against German counterparts. Against the greenback, the UK currency did creep above $1.57 earlier in the day. The dollar is continuing its fall from grace with concerns over further rounds of quantitative easing and yet more poor data showing that the amount of jobless claims unexpectedly rose last week.

Be warned, Sterling’s rebound could be a momentary correction as the pound was heavily sold on Wednesday. The UK economy remains extremely vulnerable as the BoE alluded to with the possibility of a fresh monetary injection.

In further news, I spent my morning at a seminar on foreign exchange trends, which was as interesting as it sounds.... The major themes to report for the middle to long term are;
A) A double dip recession (depending on your definition) looks an almost certainty for the US, UK and Europe, while Asia looks to be the engine house for the global economy.
B) The unstoppable ascent of the Swiss franc. The lack of support for the traditional safe US dollar has led risk averse investors to the franc and the Japanese yen. However, with the BoJ’s intervention to depress their currency, the Swissie has become the hedge of choice for many. Great internal economic fundamentals and global uncertainty in Q4 look set to send the franc higher.
C) Those of you looking for a higher-yielding asset may look to the Aussie dollar. Some analysts are saying that it is near the end of its run. However, with commodity prices at an all time high, insatiable demand from China and a high interest rate that is looking likely to be moved even higher, it has every potential.

Tom Hampton
Analyst Caxton FX

Sterling under pressure yet again

Against the euro, sterling remains at the lower end of its estimated range this month (between 1.19-1.2150) which is also near a seven week low after a raft of weak economic data confirmed a patchy UK recovery.

Bank of England data showed lending to UK businesses fell for the fifth straight month in July and data from Rightmove, also showed property asking prices in England and Wales fell for a third consecutive month in September.

Having had a relatively bullish few months after the general election, UK data seems to be softening as we move into what is going to be a very difficult Q4 globally. Fears are mounting over the looming austerity measures set out by the chancellor earlier this year and the damaging effects they could have on the UK economy next year.

In other news, despite the Bank of Japan and the Swiss central bank’s best efforts to de-value their respective currencies, they have both made considerable gains across the board. Could this prompt more severe reaction from both institutions?

Tom Hampton
Analyst-Caxton fx

Sterling starts the long climb back

Sterling is starting to claw back losses from the morning session when the pound fell against most of its peers, hitting a three week low against the euro following disappointing figures from the UK’s manufacturing industry.


A Chartered Institute of Purchasing and Supply Manufacturing PMI fell to 54.3 in August from 56.9 in July (a figure above 50 shows a growth in activity) its lowest level since November last year.

In other news, the US dollar extended its losses, pushing the euro up over 1% on the day, as positive data from Australia and China revived shaky equity markets and gave a boost to risk sentiment. The greenback also fell to its lowest level against the Swiss franc since December 2009.

Sterling at a 5 week low against the dollar

Despite last week’s the upward revision of the UK’s second quarter GDP to 1.2% from 1.1, sterling has suffered significant losses against the safe-haven currencies today. The pound is at a 5-week low against the US dollar as we see investors look for refuge due to on-going worries about the global economic recovery. Sterling fell as low as $1.5366 this morning after disappointing home sales figures from the US at the end of last week.


Of the safe-haven currencies, the Swiss franc seems to be the biggest winner today hitting a life time high against the euro (and 10-month high against sterling). The franc is up against the dollar and yen as continuing bad results from the states and government intervention to deflate the yen make the franc the low-yielding currency of choice.

In other news, going against the trend of safe-haven strength, the euro is up almost 1% against the pound as traders look to close out short positions at month end.

Sterling going for its second straight day of gains

Sterling is up against most of its major peers today with the dollar under pressure following yet more weak economic data, and the euro losing ground after Ireland suffered a credit rating downgrade from S&P.

The greenback lost ground following another round of disappointing housing figures for July as well as weaker than expected durable goods orders. In contrast to data from the peripheral eurozone countries, strong IFO figures from Germany gave the euro a brief lift. Positive CBI sales figures from the UK helped to send sterling higher.

In other news, the Japanese yen is losing more ground as speculation builds that the Japanese authorities will go beyond verbal intervention to curb the strength of the yen.

MPC member’s comments turn sterling to the downside

MPC newcomer Martin Weale said in an interview in the Times that the UK faces a ‘real risk’ of a double dip recession. Although this sentiment is nothing new after the BoE’s re-alignment of growth expectation earlier this month, its reiteration, thin summer trading volumes and the markets hunger for safe-haven investment have sent sterling down against most of its peers.


Recently, the demand for ‘refuge’ currencies has brought the pound down from a nine month high against the greenback, with the price now back down at $1.54 and talk in the market that this bear run could take it as low as $1.50. Although sterling fell against the single currency today, we expect the UK currency to return to €1.53 in the near term as the eurozone’s debt crisis comes back into focus.

Sterling down across the board

Sterling is down on the day against all its major counterparts amid speculation on the publication of the MPC meeting minutes tomorrow morning. The CPI figure came in at 3.1%, well above the Bank of England’s target of 2%.


In other news the euro received a boost following solid demand for bond auctions in Ireland and Spain, which helped ease concerns about EU funding. Against the dollar, sterling has managed to claw back early losses to currently sit a third of a cent down due to higher demand for riskier currencies.

Despite today’s setback, we expect to see the UK currency strengthen against the euro over the coming weeks as fears over the EU’s sovereign debt issues return to focus. The regional debt issues should also send the single currency lower against the greenback, leaving sterling/dollar to trade in a relatively tight range between 1.56 and 1.60 in the medium term.

Swiss franc trading mixed

Trading margins are tight on the EUR/CHF currency pairing this morning ahead of the G20 summit and as traders await the European Central Bank’s rate decision at 12.45 BST. Investors expect a cut of 50 basis points to 1%, and are speculating about whether the ECB will announce any quantitative easing strategies like many other central banks have done.

Against the pound the Swiss franc has fallen sharply this morning, reaching a 1-month low as its safe haven appeal has been undermined by rising equity markets and growing risk appetite.