Swiss currency issues

Gnomes need MMT too, even thought they would undoubtedly try to punch holes in it…

Yes, currency intervention works. It’s what I call ‘off budget deficit spending’ and there are no nominal limits.

But seems they haven’t yet figured out that a tax cut and/or spending increase would do the trick all the better re: the currency, domestic demand, and employment.

Swiss Producer & Import Prices Drop Further In July

August 15 (RTTNews) — Switzerland’s producer and import prices decreased at a faster pace in July, data released by the statistical office showed Monday.

The producer and import price index dropped 0.6 percent year-on-year in July, faster than the 0.4 percent decrease recorded in June.

The producer price index decreased 0.8 percent annually during the month, while the import price index fell by 0.1 percent.

On a monthly basis, the producer and import price index decreased 0.7 percent during the month. There was a 0.4 percent monthly decline in producer prices, and a 1.1 percent decrease in import prices during the month.

Swiss Government, SNB in ‘Intense’ Talks, SonntagsZeitung Says

By Simone Meier and Matthias Wabl

August 15 (Bloomberg) — The Swiss government and the central bank are in “intense” talks about a possible franc target to stem currency gains, SonntagsZeitung newspaper reported, citing unidentified people close to the situation.

The plans are “ready” and the Swiss National Bank may set such a target in “coming days,” the newspaper reported yesterday. The discussions are focused on the government’s role and an “appropriate plan” may be adopted on Aug. 17, it said. Walter Meier, a spokesman for the SNB, declined to comment.

SNB policy makers, led by Philipp Hildebrand, have been seeking ways to deter investors from piling into the franc and stop the currency’s ascent to near parity with the euro. While the central bank boosted liquidity in money markets and cut borrowing costs to zero, lawmakers from the People’s Party to the Christian Democrats have signaled their support for tougher measures to protect the economy and avert job losses.

“The SNB is ‘leaning against the hurricane’ in a major way,” Stephen Gallo, head of market analysis at Schneider Foreign Exchange Ltd. in London, said in an e-mailed note today. While the central bank is probably “still looking for a better entry point to initiate a new round” of currency purchases, it “will have a very difficult time limiting the extent of the franc strength.”

The franc traded at 1.1404 versus the euro at 9:45 a.m. in Zurich, down 2.9 percent from Aug. 12. It reached a record of 1.0075 on Aug. 9. Against the dollar, the currency was at 79.74 centimes, down 2.5 percent.

October Vote

Lawmakers, facing elections in October, have become increasingly concerned that the franc’s strength will erode exports and hinder growth. Consumers became more pessimistic about the economic outlook and job prospects in July and investor confidence slumped. The government held an extraordinary meeting on the franc on Aug. 8 and forecast growth to weaken over the coming months.

Goldman Sachs Group Inc. said in an e-mailed note on Aug. 5 that cut its Swiss economic-growth forecasts for this year and next to 1.9 percent from 2.1 percent and to 0.6 percent from 2 percent, respectively.

Christophe Darbellay, head of the Christian Democrats, said in a telephone interview on Aug. 12 that the party supports the SNB and called for “extraordinary measures.” People’s Party Vice President Christoph Blocher, who previously objected to currency purchases, said policy makers need to use all tools to fight a “war.”

Secret Meeting

While the SNB is formally independent, the government may comment on a target to make such a step “as efficient as possible,” the newspaper said. The SNB may introduce an initial lower limit of slightly above 1.10 versus the euro before gradually increasing it, SonntagsZeitung reported, citing insiders.

Swiss Economy Minister Johann Schneider-Ammann led a secret meeting in Bern on Aug. 2 with leaders including Swatch Group AG Chief Executive Officer Nick Hayek and Credit Suisse Group AG Chairman Urs Rohner to discuss the franc, Neue Zuercher Zeitung am Sonntag reported yesterday, without saying where it got the information. The participants all agreed to support the SNB weakening the currency, it said.

Andre Simonazzi, a government spokesman, confirmed that the franc will be on the agenda when the Cabinet meets on Aug. 17 in Bern. The government is in close contact with the SNB and Hildebrand also attended the extraordinary session last week, he said. He wouldn’t comment on possible measures.

‘Several Hundred Billions’

SNB policy makers have been reluctant to start purchasing foreign currencies to weaken the franc after intervention attempts in the 15 months through mid-June 2010 sparked a record loss of $21 billion last year.

Lukas Gaehwiler, head of UBS AG’s Swiss operations, told SonntagsZeitung in an interview that the SNB has “better chances of success” with interventions, given the current exchange rate. Policy makers would have to be ready to spend “several hundred billions of francs or more,” he said.

“The SNB is wary of currency interventions given that they were not very successful the last time,” said Ursina Kubli, an economist at Bank Sarasin in Zurich. Still, “with the franc moving closer to parity, a lot of measures are becoming more realistic.”

Swiss Franc Slides Amid Speculation of Target-Setting; Yen Falls

By Keith Jenkins and Kristine Aquino

August 15 (Bloomberg) — The Swiss franc fell against the euro and headed for its biggest three-day decline since the European currency’s 1999 debut on speculation Switzerland will take further action to counter recent gains.

The franc slid for a fourth day versus the dollar after the SonntagsZeitung newspaper said the Swiss government and the central bank are in “intense” talks over setting a target for their currency. The yen dropped the most in a week against the euro after Japan’s Finance Minister Yoshihiko Noda indicated he’s ready to intervene in foreign-exchange markets again.

“The market is rightly nervous about what’s likely to come from the Swiss authorities as they have a track record of going down more unconventional policy steps,” said Lee Hardman, a currency strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “If the steps will be enough to reverse the Swiss franc’s strengthening trend remains to be seen, but at these levels of overvaluation, which are very extreme, the risk-reward is more favorable in their way.”

The franc tumbled 1.6 percent to 1.12642 per euro at 7:12 a.m. in New York, from 1.10857 on Aug. 12, after rallying to a record 1.00749 on Aug. 9. The Swiss currency has slid 8.7 percent over the past three days, the most in 12 years. The franc declined 1.3 percent to 78.81 centimes per dollar after advancing to a record 70.71 centimes on Aug. 9.

Yen Versus Euro

The yen declined 0.4 percent to 109.78 per euro and depreciated 0.1 percent to 76.79 per dollar after climbing to 76.31 on Aug. 1, approaching its post-World War II record of 76.25 set on March 17. The 17-nation euro increased 0.3 percent to $1.4279.

The franc has soared 12 percent in the past three months and the yen added 3.5 percent, according to Bloomberg Correlation-Weighted Indexes. The currencies have gained as debt crises in Europe and the U.S. boosted demand for safety.

The Swiss National Bank may set a target for the currency in “coming days,” SonntagsZeitung reported. Talks are focusing on the role of the government and an “appropriate plan” may be adopted Aug. 17, the newspaper said.

SNB policy makers, led by Philipp Hildebrand, have been seeking ways to stop the franc’s ascent to almost parity with the euro. While the central bank boosted liquidity in money markets and cut borrowing costs to zero, lawmakers have signaled their support for tougher measures to protect the economy.


“The market is paying much more respect towards the idea that there’s some sort of shock-and-awe tactic being put together in Switzerland,” said Robert Rennie, chief currency strategist in Sydney at Westpac Banking Corp., Australia’s second-largest lender. “It’s this fear of the unknown that has sparked a significant move” in the franc.

Gains have left the franc 41 percent too strong against the euro, according to an index developed by the Organization for Economic Cooperation and Development in Paris that uses relative costs of goods and services. It’s also the most overvalued currency against the dollar, at 49 percent.

The yen has risen beyond the level that prompted Japan to sell the currency on Aug. 4, its first intervention in foreign-exchange markets since March. A stronger yen reduces the value of overseas income at Japanese companies when converted into their home currency.

“An unstable situation is continuing,” Noda said yesterday during a television talk show on the public broadcaster NHK. “As foreign-exchange market matters are my prerogative, I will continue to closely watch the markets and take bold action if it becomes necessary.”

Japan’s Economy

Japan’s economy shrank at a 1.3 percent annual pace in the three months through June, the third quarter of contraction, government data showed today. The median forecast of economists surveyed by Bloomberg News was for a 2.5 percent drop.

The euro rose for a third day versus the dollar on speculation a meeting tomorrow between French President Nicolas Sarkozy and German Chancellor Angela Merkel in Paris may result in action to contain the region’s debt crisis.

The two leaders “will come out with something,” said Alex Sinton, senior dealer at ANZ National Bank Ltd. in Auckland. “It may even be long-term viable. I suspect there’ll be a range broken this week.” Investors will be looking to sell the euro on rallies toward $1.44, Sinton said.

Foreign-exchange traders reduced bets against the dollar by the most on record as demand for Treasuries soared amid global growth concerns. Aggregate bets the greenback will weaken against the euro, the yen, the Australian, Canadian and New Zealand dollars, the pound, the franc and the Mexican peso plunged by 154,105 contracts to 153,216 in the week ended Aug. 9, the biggest drop ever in Commodity Futures Trading Commission data compiled by Bloomberg beginning in November 2003.

Pound Outlook

Traders are betting on pound weakness even as the euro-area debt crisis deepens because of slumping consumer sentiment and a growth rate that may trail behind Germany’s by more than two percentage points in 2011, analysts in Bloomberg surveys said. Analysts cut forecasts for sterling versus the euro by 5.7 percent this year, the most of 17 developed-nation pairs tracked by Bloomberg.

The pound declined 0.2 percent to 87.66 pence versus the euro today and appreciated 0.2 percent to $1.6306.