Swiss franc tumbles

C’est quand même hallucinant, avoir une bonne gestion d’État et une des meilleures démocraties au monde, devient un sérieux problème dans notre économie actuelle.

Car être entourés par des pays irresponsables, ta monnaie devient une valeur de refuge, conséquence tes compagnies soit moins compétitive.

The Swiss National Bank made a surprise attempt to halt the rise in value of the franc on Wednesday, saying its currency was “massively overvalued”, but the impact of the move became more limited as the day wore on. The Italian and Spanish prime ministers also made an effort to stem the rapid rise in borrowing costs that has sucked them into the heart of the eurozone debt crisis.

Extrait de: Swiss franc tumbles as SNB cuts rates, By Neil Dennis and Jennifer Hughes in London, FT, August 3, 2011

Switzerland has unexpectedly cut interest rates and said it would increase the supply of francs to money markets to stem the rapid rise of the Swiss currency, which has hit record highs as financial markets have gyrated.

The Swiss National Bank said on Wednesday that the franc was “massively overvalued”, sparking speculation that it would intervene by selling Swiss francs and buying euros and dollars to weaken the currency.

Swiss franc surges to fresh highs

It said it was aiming for a three-month rate “as close to zero as possible” from its current 0.25 per cent level and warned that it would not tolerate the currency’s strength, which was “threatening the development of the economy and increasing the downside risks to price stability in Switzerland”.

The move triggered a sharp sell-off in the franc, which tumbled more than 2 per cent against the euro amid continued volatility in equities following Tuesday’s late sell-off on Wall Street.

The central bank last intervened in currency markets in July 2010, when it was battling to counter deflationary pressure in the Swiss economy as a result of the franc’s strength.

It said then that the threat of deflation had passed and indicated that further intervention was unlikely. The SNB suffered paper losses, estimated at about SFr12bn, from its intervention.

Wednesday’s move came as financial markets suffered further losses in a week that has taken New York’s S&P 500 index back into negative territory for 2011 after its worst one-day drop in a year.

Rising fears about the sovereign debt crisis in Europe and the US debt burden have prompted haven buying of assets considered to be safe from volatility, such as the Swiss franc, the Japanese yen and gold.

“The price action on the Swiss franc is indicative of investors becoming more concerned with sovereign balance sheets,” said Michael Derks at FxPro.

Yields on benchmark 10-year Spanish and Italian bonds peaked at 6.45 and 6.25 per cent respectively on Tuesday, but were lower on Wednesday.

We really are in a dangerous territory at the moment without an obvious solution outside of monetisation,” said Jim Reid, strategist at Deutsche Bank

Swiss bank moves to calm soaring franc


Some eurozone banking stocks were hit hard, undermined by a disappointing second-quarter statement from Société Générale. The French bank missed analysts earnings targets and warned its 2012 €6bn profits targets would be difficult to achieve. Its shares fell more than 7 per cent.

Having climbed as high as SFr0.7623 against the dollar, and SFr1.0790 to the euro – a fresh record – the Swiss franc fell rapidly after the central bank’s move.

By mid-afternoon, the dollar was up 1 per cent to SFr0.7717, while the euro was up 2 per cent at SFr1.1059.

Strength in the currency has come at a high price to the Switzerland’s manufacturers, with many commenting in their recent earnings statements that currency market headwinds were eroding their profits. Although the SNB move was likely to be welcomed by Swiss industrials, analysts believed the outlook for the Swissie would be little changed.

“A weaker global environment and rising systemic stresses, together with demand for reserve diversification, and capital stresses in the European banking system mean that the attraction of the franc’s haven qualities is unlikely to dissipate,” said Lena Komileva at Brown Brothers Harriman.

“These liquidity measures for now look to get the three-month Libor rate down close to zero but can morph into the active use of FX intervention in order to increase liquidity in the economy,” said Divyang Shah at IFR Markets