The SNB has doubled its 2012 growth outlook and vowed to continue enforcing the EUR/CHF cap at 1.20. The central bank also held interest rates at 0%-0.25%.

By Josh Ferry Woodard

On September 6^th 2011 the Swiss National Bank set a minimum exchange rate of 1.20 Swiss Francs to the Euro to combat the Franc’s intense appreciation in value. The ongoing Greek sovereign debt crisis had spooked investors into selling the single currency, and the US economy was suffering from a similar vote of no confidence. Seeking a safe haven from the financial meltdown, investors pumped large amounts of Euros and Dollars into the Swiss currency.

The Big Mac index, which measures price parity between countries and currencies, indicated that the Swiss Franc was overvalued by 98% against the Dollar. This had an adverse effect on the Swiss economy; the Franc was so strong that export prices soared way beyond competitive levels. Swiss companies were posting terrible profits and many threatened to relocate outside of the country if the Franc’s value continued to inflate beyond its means.

The SNB responded by vowing to “buy foreign currency in unlimited quantities” to keep the Euro to Swiss Franc Exchange Rate above 1.20. Within 15 minutes the Franc lost 9% against the US Dollar and 8.8% against the Euro, stunning the currency exchange market.

Well that was then and this is now…

This morning the SNB almost doubled its growth outlook for 2012 from 0.5% to 0.8% growth: “There are growing indications that Switzerland’s economy is stabilising.” The SNB claimed that the exchange rate cap was a significant factor in their improved forecast: “While the high value of the Swiss Franc continues to present enormous challenges to the economy, the minimum exchange rate is having an impact. It has reduced exchange rate volatility and given business leaders a better basis for planning.”

The Swiss National Bank remains dedicated to buying foreign currency in unlimited quantities to maintain the EUR/CHF 1.20 exchange rate cap. Following the decision the Swiss Franc improved by 0.28% against the Euro, 0.40% against the Pound, and 0.58% against the US Dollar (11:38 GMT).

15^th March 2012 Swiss Franc Exchange Rates:

Today’s Euro to Swiss Franc Exchange Rate is 1.210

Today’s Pound to Swiss Franc Exchange Rate is 1.452.

Today’s Swiss Franc to US Dollar Exchange Rate is 1.079.

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By Josh Ferry Woodard

The New Zealand Dollar got off to a slow start this week as risk appetite deteriorated on the back of negative global financial news. US President Barack Obama issued an aggressive statement aimed at Iranian leaders, stoking fears that the US could be heading towards another war in the Middle East. Risk sentiment took another blow when Spanish Prime Minister Mariano Rajoy announced that Spain will miss its budget deficit target for this year, leaders in the Netherlands had a similarly negative outlook for their growth plan. This fuelled the flames of discontent surrounding the Eurozone economy as a whole, suggesting that growth within the 17-nation bloc could be stunted even more than initially expected.

Global markets slowed down considerably and as a result the commodity-correlated currencies such as the Kiwi and the Aussie suffered from investors’ flights to safety. The New Zealand Dollar lost out to all of the majors at the beginning of the week:

The Pound to New Zealand Dollar Exchange Rate increased from 1.918 to 1.938.

The US Dollar to New Zealand Dollar Exchange Rate grew from 1.211 to 1.226.

And the Euro to New Zealand Dollar Exchange Rate rallied from 1.599 to 1.615.

The Kiwi’s decline continued following the reserve Bank of New Zealand’s decision to leave the official cash rate at its record low 2.5% – the interest rate was not expected to change but central bank governor Alan Bollard spoke of the potential risks to economic growth posed by the New Zealand Dollar’s appreciation in the foreign exchange market.

Bollard described the NZD’s current strength as ‘detrimental to the tradable sector, undermining GDP growth, and inhibiting rebalancing in the New Zealand economy’. He predicted the kiwi could negatively impact the manufacturing and tourism industries; his intentionally dovish tone seemed to have been successful in weakening the currency as the New Zealand Dollar continued to spiral downwards immediately following the announcement.

However within a few hours, investors ignored the governor’s negative rhetoric and the Kiwi rallied back up towards the rates at which the week commenced. Global sentiment seemed to relax a little on the news that the Greek PSI bond swap deal was making progress and the demand for the New Zealand Dollar picked up again.

Despite Bollard’s dovish speech the Kiwi looks to be in a strong position; if the Greek debt deal goes well tonight expect risk sentiment to improve and NZD could rally further.

The current Kiwi rates are (as of 10:51 GMT):

Pound to New Zealand Dollar Exchange Rate – 1.911

US Dollar to New Zealand Dollar Exchange Rate – 1.209

Euro to New Zealand Dollar Exchange Rate – 1.598

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The Swiss Franc went sideways against its safe haven counterparts the U.S dollar and Japanese Yen but made gains against the weaker euro of 0.2% in London trading.

The trustee representing victims of the US financier Bernie Madoff’s fraudulent operations has increased the amount it is seeking from the Swiss bank UBS. Irving Picard filed a $2bn (£1.3bn) lawsuit against UBS in November, accusing it of lending “an aura of legitimacy” to funds run by Madoff, whose so-called Ponzi scheme led to clients losing billions of dollars. He has now outlined 26 additional counts of financial fraud and misconduct against the bank, bringing the total damages sought to $2.5bn. UBS denied the allegations, saying they are without merit. The case against HSBC rests on allegations that it failed to act on signals that should have prompted it to stop channeling funds to Madoff’s operations.
HSBC and JP Morgan Chase also deny any wrongdoing.

Written by James Rowe

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There is little in terms of fresh updates on either the eurozone or US economies today but given last Friday’s disappointing non-farm payrolls report, markets will be keeping a close eye on weekly jobless claims.

The dollar’s recent rally appears to have run out of steam in tandem with a pause in the sharp uptrend in US Treasury yields, which had been a major driver of dollar gains earlier this week. A view is emerging that the sell-off in treasuries, on raised growth expectations after the deal struck between Obama and Republicans to extend tax cuts, may have been overdone.

The dollar is suffering from improved risk appetite following overnight news of surprisingly strong Australian employment data. This saw the Australian Dollar jump by nearly 1% at one stage. The New Zealand dollar, though, is lagging following a surprisingly dovish statement from the Reserve Bank of New Zealand following its meeting at which rates were left on hold at 3.0%, as had been widely expected.

Against the dollar, sterling pushed higher, rising 0.2 percent to $1.5787 after trading lower earlier in the session, with traders citing real money and sovereign demand for the UK currency. Gains were limited, however, as the dollar benefited broadly from a jump in U.S. bond yields after a proposed extension in U.S. tax cuts fuelled concerns about inflation.

The dollar later rose against most other currencies yesterday on the back of a spike in U.S. Treasury yields causing funds to flock in the direction of the Greenback. Also a proposed extension in U.S. tax cuts raised growth expectations for the U.S. economy and pushed U.S. Treasury yields to their highest level in at least six months as they fuelled fears about inflation and Washington’s control of the budget deficit. That also drove 10-year gilt yields to four-month highs although gilts underperformed U.S. Treasuries, tempering sterling gains.

Written by James Rowe

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The Australian dollar edged back today as a three session rally drew some profit taking, though it held most of its recent gains helped by expectations of extended stimulus in the Unites States.

The Aussie was supported by domestic data showing a healthy 2.9% rise in job advertisements in November which augured well for an upbeat reading from the official employment report due on Thursday. Analysts are looking for a solid rise of around 19,000 in employment and a drop in the jobless rate back down to 5.2%. Such a result would help offset a run of softer data recently and keep the Reserve Bank on inflation watch.

“Jobs should remain an ongoing key support to household income – which coupled with an on-hold RBA over coming months – should help consumption to pick-up ahead, after some patchiness recently,” said George Tharenou, an economist at UBS.

The Reserve Bank of Australia has, as expected, held interest rates unchanged at 4.75% and Governor Glenn Stevens said the market was reasonable in pricing in the next move around mid 2011. With the next interest rate rise in Australia likely to be months away and the markets expecting a slowdown in the rate of growth in the Chinese economy to control inflationary pressures sapping demand for Australian raw materials. The RBA forecasts Australia’s economy to expand 3.5% in 2011 from the average 2.7% in the first three quarters of this year with inflation and employment seen picking up in line with economic growth.

“The terms of trade are at their highest level since the early 1950s, and national income is growing strongly as a result,” Stevens said.

The RBA chief said private investment had recently started to pick up in response to high levels of commodity prices, while spending and borrowing in the housing sector continued to show signs of caution, leading to a “noticeable increase” in the saving rate. The assessments are broadly in line with Stevens’ testimony to the House Representatives’ economics committee last month, where he said it was “reasonable” to assume no further rate hikes will be imminent from the central bank for some time. The RBA has been one of the most aggressive of the major central banks in raising interest rates following the global downturn. The nation’s economy has enjoyed a robust rebound led by voracious demand for its abundant mineral resources from China and India.

Written by Tony Redondo

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In a rare television interview, Federal Reserve Chairman Ben Bernanke said that the Fed could end up buying more than the $600 billion in US government bonds it has committed to purchase if the US economy fails to respond or unemployment stays too high. But he also did not rule out stopping short of the total.

He added that the Fed will regularly review the policy and could adjust the amount of buying up or down depending on the economy’s path. Bernanke stated that the Fed’s actions are aimed at supporting what is still a fragile economic recovery, dismissing critics who argue the policy will lead to future inflation.

“This fear of inflation I think is way overstated,” Bernanke said in the interview aired on Sunday. “What we’re doing is lowering interest rates by buying Treasury securities,” he said, “and by lowering interest rates, we hope to stimulate the economy to grow faster. The trick is to find the appropriate moment when to begin to unwind this policy. And that’s what we’re going to do.”

Bernanke said it would take four to five years for the country’s unemployment rate, which rose to 9.8% in November to come down to what he called more “normal” levels of around 5% to 6%.

The US economy grew at a modest 2.5% annual rate in the three months ending September 2010 and more vigorous growth is needed to bring down unemployment. The interview follows Friday’s worse-than-expected US employment report. The increase in the unemployment rate to 9.8% has fuelled speculation that there could be further QE or QE3, which seems a little premature given the Fed is only 1 month into QE2.

Written by Tony Redondo

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The spotlight that has been shining brightly over the Eurozone this week will shift onto the US this afternoon as the release of November’s non-farm payrolls report is announced. The report is forecast to show that payroll was up 140’000 over the month; however this is not expected to make a real difference to the overall unemployment rate which is expected to remain unchanged at 9.6%. After racking up strong earnings growth in 2010, major U.S. manufacturers are expect to set the stage for a slower-paced 2011 when they meet with analysts and investors to lay out their expectations for the coming year. Among others, General Electric, United Technologies and 3M are all set to provide 2011 forecasts shortly. Profit margins across the sector swelled this year as companies that cut costs to the bone during the brutal recession experienced a rebound in sales that helped the Standard & Poor’s capital goods industry index to rise about 14%, more than twice the gains of the broader US Stock market. Analysts expect 2011 profits to rise next year, but not at the same pace as 2010. It is likely that the forecast for the dollar will be negative as the slow recovery and difficult sets of fundamental undermine the currency during these difficult times.

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Weaker Yen this week has helped Japanese shares prevent sharp losses but the upward momentum for USD/JPY has to be supported by some good news from Europe, suggested by fundamentals. USD/JPY tends to fall further during the European trading sessions and the market is preparing itself for more bad news from Portugal or Spain, likely in the coming days. The pairing may only have a brief stop near 83.75 and looks good top stay form around this price throughout today. A strong showing of economic data could rally in favour of the dollar and push rates towards the 84.70 resistance level. This could be a long time coming, however as we await the non-farm payrolls in the US later today.

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UBS is expanding commodities coverage to include investor-led flow trading in agriculture, base metals and energy, the Swiss bank said on Wednesday. UBS which suffered heavy writedowns during the financial crisis and had to be bailed out by the Swiss government was already active in precious metals. In January 2009 the wealth management giant took the radical step of selling its base metals, oil, and U.S. power and gas business to Barclays. It said at the time it would exit most commodities businesses, including agricultural goods and base metals. It held on to precious metals, index and exchange-traded commodities. Jean Bourlot, global head of commodities at UBS Investment Bank, heads a team of around 40, which he plans to double within two years. “UBS has always maintained its core strengths in commodities, like our market-leading indices and precious metals offerings — in that sense we never left,” Bourlot said in a statement. “Quite simply our expansion into flow trading, in areas such as agriculture, will leverage and complement what already exists inside UBS,” he added. The Swiss Franc lost nearly 1% to the EUR but traded sideways against its safe haven counterparts the Japanese Yen and US Dollar.

Written by James Rowe

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In the Us Non-farm productivity and poorer than expected unemployment data weakened the Dollar throughout the day’s trading. A commission set up by president Obama says US debt is the greatest threat to security, and urges sweeping spending cuts and tax reform. The National Commission on Fiscal Responsibility and Reform laid out an ambitious plan to cut the US budget deficit to 2.3pc of gross domestic product by 2015 from 9pc this year. The commission, which was appointed by President Obama, argues that savings need to be found in both defence and non-defence spending, as well as healthcare programmes such as Medicaid. “Our challenge is clear and inescapable: America cannot be great if we go broke,” the report, titled ‘The Moment of Truth’, said. Americans are counting on Congress to “put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.”
Tomorrows Non-farm payrolls could see the further volatility depending upon the outcome.

Written by James Rowe

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