Forex Investment and Currency Trading

The Swiss National Bank cut its benchmark interest rate by 25bps to 0.25% but the bigger story is that the SNB will also intervene in the currency market to stem CHF appreciation.  The news release pushed EUR/CHF from 1.4800 to 1.5100 in a matter of seconds and dragged EUR/USD higher with it. Currently EUR/CHF stands at 1.5220.

Other tidbits from overnight:

• New Zealand cut rates 50bps to 3% as expected
• Korea leaves rates unchanged on expectations of a 50bps cut.  Analysts still forecast 50bps worth of easing before year-end but note that central banks are acknowledging the impact a weaker currency can have on easing financial conditions
• German IP declined dramatically to -19.3% y/y.  Look for Euro area revisions to GDP growth
• China Retail sales declines 15.2% y/y

The first rule of Foreign Exchange is “Never get in the way of a Central Bank trying to weaken its own currency.”  After yesterday’s “slip” with the SNB preannouncing a rate cut - (only in German),  the SNB upped the ante today by announcing that they would sell their currency to buy foreign exchange in the open market, and they are implementing that with steady selling of CHF in 20mm clips through their own banks.  There were clear concerns in Switzerland  that efforts by Eastern Europeans and others to pay down CHF denominated debts would create a perversely strong CHF, choking off Swiss competitiveness.  The Swiss are also reminding the EU and others to ignore Switzerland at their own risk.  Switzerland is NOT in the G20, where the major countries are represented and the EU has a representative as well.  “Every country that counts” is meeting in London.  The Swiss, who have chosen to sit out all European economic cooperation will now have to draw on Chf resources to support their highly exposed banking sector.  The intervention was well timed to mask the effects of the Roche purchase of Genentech which closed this morning.  Having raised a basket of currencies, Roche, of course owes the DNA shareholders US Dollars.  The currency, which traded at 1.1500 in Europe has weakened to 1.1925 thus far.  It is a question how long the Eurozone will tolerate a competitive devaluation in the Swiss franc. The German, French and Italian and Spanish economies have been battered by the pegging of the CNY to Dollars and the 15 percent devaluation of the GBP since October.    Today’s move, however, must be very welcome among Hungarians, Poles, and Romanians who fund their European autos and lifestyle on Chf-denominated credit card lines.