Anyway, before I get sidetracked any further, today's story concerns EUR/CHF. Apparently, the Swiss franc has been gaining big on the euro in light of the much-publicized but largely salvageable Greek woes. Although the likes of yours lie in wait in the Forex Pumpkin Patch for signs of the Great Japanese FX Intervention, we are thwarted again and again as the Land of the Rising Sun hasn't done that sort of thing since 2004. There might be less of a need to do so at the current time as Japanese exports have climbed 45% on a year-on-year basis. Meanwhile, the Swiss are naturally concerned by the erosion of their competitiveness vis-a-vis most of their Western European trading partners and have seen it fit to engage in moral suasion (talking down the Swissie and sabre-rattling about intervention) and open market operations by actually selling francs in markets worldwide. From Bloomberg:
The Swiss franc rose against the euro for the eighth straight day [make that nine if EUR/CHF falls again today; click on chart for larger image], the longest run of gains in 17 months, on bets the country’s central bank will allow the currency to appreciate amid signs of an improving economy. The franc strengthened through 1.43 per euro for the first time even as Swiss National Bank President Philipp Hildebrand said the bank has a “broad arsenal” to prevent “excessive” gains by the currency. UBS AG, the world’s second-biggest foreign-exchange trader, increased its franc forecasts, predicting it will strengthen to 1.40 per euro in three months from 1.45 previously.It's always interesting to see central bankers trying to game the system. Many think FX intervention doesn't work given the sheer volume of trading in today's currency markets. Perhaps Japan has learned this lesson while the Swiss are still in the process of receiving it as commentary in the above article suggests. In the meantime, please join me in the Forex Pumpkin Patch as we lie in wait for the next coming of the Great Japanese FX Intervention. Like Godot, it is proving to be rather elusive.
“The verbal intervention today has limited impact on the franc,” said Ian Stannard, currency strategist at BNP Paribas SA in London. “With the economic recovery gathering momentum, the trend is for the franc to rise. The market will keep testing the resolve of the SNB to find out what they meant by ‘excessive.’ It’s going to be a difficult transition for the central bank...”
The SNB began selling the franc on March 12, 2009, to stem its gains and stave off deflation. [SNB President] Hildebrand, making his first public speech since taking the helm of the central bank, also said “the instruments are clear. We’re purchasing foreign currencies, and we’re able to do that to a very large extent to counter any excessive appreciation.”
The currency has gained 0.6 percent against the euro since SNB Governing Board member Jean-Pierre Danthine said on March 18 that “households and firms should prepare themselves for a return, sometime in the future, to a world of higher interest rates, with exchange rates being guided by market forces...”
UBS also said the franc may appreciate to 1.42 per euro in one month. “The justification for large-scale interventions is fading fast with deflation disappearing and economic indicators strong,” wrote UBS analysts including Mansoor Mohi-uddin in Singapore. Any “sharp and sudden” moves in the franc “could still trigger SNB intervention, but with limited speculative positioning and strong fundamental pressures this would be unlikely to have much lasting effect,” they said.
UPDATE: More trader talk suggests the SNB has stayed out of the market today in fears of continued action leading to Switzerland being labelled a currency manipulator during the next biannual Treasury report [!] I couldn't make this stuff up; I'd take it with a grain of salt:
The SNB's Wednesday absence in markets as the Swiss franc plunged "may well be in response to the fact that based on the U.S. Treasury's mechanistic approach to ranking currency manipulation, it is arguably the case Switzerland has a higher chance of being named a manipulator than China in the 15 April 2010 U.S. Treasury report on International Exchange rate policy," said Sue Trinh, senior currency strategist at Royal Bank of Canada, in a note to clients.