Back in 2011 the Swiss monetary
authorities became very concerned about the strength of their currency, as did
all Swiss citizens, but particularly those who depended on earnings
from abroad. This included not only exporters, but also people involved in the
tourism industry. The cost of living in Switzerland was already quite high and
the appreciation of the Swiss franc against the Euro, the currency of their
largest trading partner, had become alarming.
Because of the arrangement of the currency
pair, a fall in EURCHF means that the franc is rising in value.
For quite some time, the Swiss National
Bank (SNB) tried to talk down the currency. There was a period when there
seemed to be a cat and mouse game going on between the Swiss and the major
hedge funds and other institutions that are foremost in currency trading. Swiss
citizens talked openly of a conspiracy against them, using the currency as a
weapon.
Then, in 2012, the SNB announced that
it would spend whatever cash was required to purchase Euros on the Foreign
Exchange markets so that a floor would be maintained under the pair, at 1.20
Euros to the Swiss franc. As can be seen from the chart above, that has worked
in the interim. Now, however, the 1.20 level is again on the horizon. We can
therefore expect direct intervention in the market to avoid a fall below this
level. The Swiss have a lot of money. Have they enough?
Mario
Draghi speaks today
The Swiss authorities might be
expecting some assistance from the governor of the European Central Bank, Mario
Draghi, when he speaks later in the day at the commencement of the Quarterly Hearing
before the Committee on Economic and Monetary Affairs (ECON) of the European
Parliament in Brussels.
The Euro, of course, has been falling
against all its major counterparts of late. Mr. Draghi is not expected to say
anything that will change this, as a weaker Euro fits in with the ECB’s desire
for higher inflation across the Euro zone. Nevertheless, his words will be
listened to and parsed, and we would imagine not least by the treasury
department of the Swiss National Bank.
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