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Old 23.01.2009, 08:17
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SNB does not want the franc to appreciate

From yesterday. Let the devaluation fight begin!

Vice-Chairman of the Governing Board of the Swiss National Bank says SNB may sell Swiss francs against foreign currency in order to prevent an appreciation. Briefings.

Philipp HILDEBRAND, Vice-Chairman of the Governing Board of the Swiss National Bank, issued the following statement: "The global financial system is in the midst of the biggest crisis of the postwar years. Above all, the crisis is the most complex of this period. Problems in the US sub-prime mortgage market led to the breakdown of both markets and general trust. In particular, the interbank market, the nerve centre of the financial markets, froze up for several months. Governments and central banks managed to prevent the financial system from collapsing. The interbank market has been revived and risk premia have come down from their former record levels. In the meantime, however, the financial crisis has worked its way through into the real economy, which is now moving into a sharp downturn. In order to fight the crisis, the central banks have lowered their key interest rates aggressively. The instrument of the Swiss National Bank (SNB), the repo rate, has practically reached zero. However, this certainly does not mean that the SNB is incapable of action. If needed, there are other options available. The National Bank can extend the terms of repo transactions or give consideration to the purchase of government and corporate bonds. Where necessary, the SNB may also, for example, sell an unlimited amount of Swiss francs against foreign currency in order to prevent an appreciation of the Swiss franc or even to bring about a devaluation of the national currency. The SNB is very well aware that the determined route it is pursuing in fighting this historic crisis is associated with long-term risks. At the same time, it is firmly convinced that the risks involved in not following this course would be considerably greater. In this spirit, it is facing up to the task of fighting the crisis while at the same time maintaining a watch on the long-term aspects. At some point, the moment will come when the National Bank decision-makers will need the courage to do what is right in the long term even if it is not popular in the short term."


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Last edited by Verbier; 23.01.2009 at 21:38. Reason: Removed a typo from where I copied the article
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Old 23.01.2009, 09:14
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Re: SNB does not want the franc to appreciate

So that means if I was already thinking of moving some CHF to another currency, sooner is probably better than later ?

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Old 23.01.2009, 09:46
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Re: SNB does not want the franc to appreciate

It is all a matter of who pulls the trigger first. With the Euro at 1.48-1.49 I do not see the Swiss being too happy if it fell much further - bad for business. The big question is "what is that number?".

It is certain that the Americans are looking to devalue so everyone else will have to react.
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Old 23.01.2009, 10:02
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Re: SNB does not want the franc to appreciate

So it basically wants Swiss goods to remain competitive. I suspect that it has to say this as the Franc has risen and will continue to rise in this environment as a safe haven currencty

Have to say I thought using the word devaluation was a big no no for central banks. I'm not sure if this is an attempt to use robust language so that the currency moves without actually having to do something. I wonder how much the market prices reflect this comment. Prices didnt more at all. Perhaps the market doesnt believe the SNB.

Any FX experts on here who want to comment? Would be good to know. I often ship money back to pay off the mortgage. I still think (as does the majority of the world it seems - google jim rogers on the FT) that the pound is only going to get weaker.
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Old 23.01.2009, 10:31
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Re: SNB does not want the franc to appreciate

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Any FX experts on here who want to comment? Would be good to know. I often ship money back to pay off the mortgage. I still think (as does the majority of the world it seems - google jim rogers on the FT) that the pound is only going to get weaker.
Since I usually get it wrong, wait about a week after I make a transfer
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Old 23.01.2009, 10:32
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Re: SNB does not want the franc to appreciate

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I'm not sure if this is an attempt to use robust language so that the currency moves without actually having to do something. I wonder how much the market prices reflect this comment. Prices didnt more at all. Perhaps the market doesnt believe the SNB.
Talking the franc down is exactly what the SNB is trying to do. The market didn't pay much notice because he said only what they've being saying for some time so it wasn't "new" news. He's also stating the obvious. With interest rates already so low they've run out of bullets in terms of further cuts so the type of intervention he's talking about is the logical next step. The FX markets know this.
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Old 23.01.2009, 13:43
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Re: SNB does not want the franc to appreciate

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Talking the franc down is exactly what the SNB is trying to do. The market didn't pay much notice because he said only what they've being saying for some time so it wasn't "new" news. He's also stating the obvious. With interest rates already so low they've run out of bullets in terms of further cuts so the type of intervention he's talking about is the logical next step. The FX markets know this.
What's your take on GBPCHF Nev? Likely direction and rationale?
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Old 23.01.2009, 14:45
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Re: SNB does not want the franc to appreciate

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What's your take on GBPCHF Nev? Likely direction and rationale?
My own personal view is that the pound is a bit undervalued but that doesn't mean it will revert to fair value anytime soon because the ordinary forces of supply and demand aren't the sole factors at play here. Unless and until the SNB intervenes, the Pound stays weak because the UK economy and banking sector are in a woeful mess and the government and B of E are pursuing policies which undermine the currency further. In other words they've made the decision to let the pound go so support is not going to come from home any time soon. That means speculation will also continue to work against sterling. Even then, intervention by the SNB will have modest impact, stabilizing the range at best. They are much more concerned about the euro and the dollar. The real turning point for sterling will come if and only when the market sentiment starts to smell that the UK's policies might work. Of course if this develops into a sustained run on the pound the UK government would be forced to intervene but then sterling would be in a real ugly place.
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Old 23.01.2009, 14:54
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Re: SNB does not want the franc to appreciate

How to devalue your national currency...

Perhaps the Swiss could employ Gordon Brown, it's the one thing he can claim he is quite capable of managing....
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Old 23.01.2009, 15:37
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Re: SNB does not want the franc to appreciate

I havent been in CH for long, so i dont really know if its a major exporter or importer.

having such a strong CHF will decrease company profit and taxes, especially with the double wammy credit crunch growth of companies is already forecasted to be lower then even 6 months ago.

a few choice words by the SNB will not be enough to effect, the CHF, as someone said earlier.

The weaknesses of the other large economies, US, UK, Japan (and closer to CH, Germany) will keep the CHF relatively strong until consumer confidence in those markets retruns and some business investment occurs.

the strong CHF has already hurt results for my company being a multinational. where 6 months ago sales targets were believed to be met considerably easily.

i think no big fluctuations from the current prices for 6 months atleast, until we see what these supposed rescue/stimulus packages do for the failing economies.
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Old 23.01.2009, 15:46
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Re: SNB does not want the franc to appreciate

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My own personal view is that the pound is a bit undervalued but that doesn't mean it will revert to fair value anytime soon because the ordinary forces of supply and demand aren't the sole factors at play here.

What makes you think it is a bit undervalued?
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Old 23.01.2009, 16:04
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Re: SNB does not want the franc to appreciate

The Swiss Franc is considered a "safe haven currency" (see under section Safe Haven Status) which will (or perhaps be more cautious and say "should under normal conditions") appreciate in tough economic times.

The SNB in Sep 2007 have published a working paper on this subject (Safe Haven Currencies) which I found quite good.
The SNB's intention to stop the currency appreciating will be tested by external external funds flowing into the country and driving up the Swiss Franc. It's a matter of what trend will be stronger. No one can tell really, and don't believe those who say they can .
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Old 23.01.2009, 17:08
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Re: SNB does not want the franc to appreciate

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What makes you think it is a bit undervalued?
It's not based on any charts, mean reversions or other voodoo, I can assure you of that. Anyway, because of the volatility, the almost daily diet of bad news and the extreme policy measures only recently taken by the government, it's impossible say with any confidence where fair value should be based on historic means and charts. They might have some value but only in orderly markets which these aren't. So I can only fall back on my experience of markets and gut feeling which tells me the UK's woes and then some are priced into the pairs right now whereas I don't think that's true of the euro zone which has serious problems too. But don't get me wrong. Fact is, I don't think fair value matters because I think sterling is going to stay undervalued for some time because of the reasons I gave before, chiefly the government has made it's clear it's priorities lay elsewhere than propping up sterling.
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Old 23.01.2009, 21:35
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Re: SNB does not want the franc to appreciate

One fact to notice is, unlike stock market which can go down in every country of the world, you can't have all currencies going down as they are relative to each other.
So we can't say UK Sterl., USD, Euro, Yen,.... all going down as all of their economies are going down.
in the end what counts is relative strenght of those economies, interest rates relative to the others, plus lots of speculative and non-formulated-not-predictable factors in the markets!
So who can say which currency is better to keep in next months?!
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Old 24.01.2009, 04:52
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Re: SNB does not want the franc to appreciate

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One fact to notice is, unlike stock market which can go down in every country of the world, you can't have all currencies going down as they are relative to each other.
In the context of exchange rates yes but currencies have an absolute value as well as relative value. ie looked at in terms of purchasing power. Global inflation could bring about a correlation where currencies in all major economies lose value.
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Old 24.01.2009, 05:06
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Re: SNB does not want the franc to appreciate

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How to devalue your national currency...

Perhaps the Swiss could employ Gordon Brown, it's the one thing he can claim he is quite capable of managing....
exactly . However its not that simple. He would then proceed to destroy the economy here as well, sell all of switzerlands gold - which he will tell the market beforehand to guarantee the lowest price possible, and then stand up and tell everyone how he 'saved the world' while his country crumbles around him.
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Old 25.01.2009, 10:43
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Re: SNB does not want the franc to appreciate

There is no logic behind most fluctuations in any market. Every time a war breaks out in far-off-istan the market plunges. Hmmm, can't remember a war, even a big one, where corporations didn't make out like bandits. How then is a war, in a place where most do no business, possibly justification for this? Of course it isn't. Most of the "analysts" involved couldn't put their own country on a map, let alone understand the worldwide implications of Hutu killing Tutsi, or even an Israeli move into Gaza.

Currency markets are even less logical. I lost track of the number of times in the 80's and early 90's that the "experts" felt such and such a country had a stronger economic outlook than the US and yet the currencies were inverted in their trends with each other. Total crap.

Take the CAD and USD recently. The CAD was at parity with the USD for the first time in 30 yrs. People were talking about how this could go on indefinately. Financial crisis hits, and the CAD is down around 0.8 USD where it has spent the vast majority of the last 30 yrs on average (the average is perhaps just slightly lower than this). Why? Canada has the lowest debt to GDP ratio of the G8. Despite promises of massive deficit spending in the next two years, this position will not change. The "experts" all say, and have been saying since the crisis, that Canada has the strongest economy in the G8. What then is the source of this plunge? Of course it isn't rational. Some will say well...USD is a "reserve" currency. Hmmm, lets see...sky..falling...depression coming...worst..financial crisis..since 1929..death..destruction..OOOOHH the humanity!, caused by US, US has weakest economy...no I'm sorry, if it were really that bad then gold, silver, platinum would be the "reserve" currency of choice, Canadian precious metals would be worth more and the CAD would be worth USD$1.50 right now. No, what has caused the USD to climb, or at least hold its own, is everyone BETTING...that's right folks...SPECULATING that everyone else will flee there as well.

It would be pretty funny to watch if the prospects of when this stupidity finally breaks down weren't so appalling. The relative strengths of currencies are "supposed" to be based on relative strength of the economy underlying them. They VERY CLEARLY ARE NOT in most cases. If you try and use logic to place your bets on where relative exchange values will go, well, you do so at your own peril.

What does this mean for the CHF? It means if the majority of the clowns with more money than brains think the rest of the clowns with more money than brains are going to buy them, then the SNB could sell every CHF they have, and print enough CHF1000 notes to fill the Zurichsee and it wouldn't matter, the CHF is going to go where it will go. I for one wouldn't wager one Zimbabwean dollar (which I hear is on the rise...anyone want in on this?) on the SNB being able to affect the exchange in any more than the tiniest of ways for the briefest of moments.
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