2 Feb 2015
Both Denmark and Switzerland might have intervened in FX space – BBH
FXStreet (Barcelona) - The Brown Brothers Harriman Team note that both Denmark and Switzerland appear to have intervened in the FX space by buying euro, with the former defending its 1% range and the latter speculated to have adopted an unofficial EUR/CHF 1.05-1.10 floor.
Key Quotes
“we note that both Denmark and Switzerland appear to have intervened in the foreign exchange market last week to buy the euro. Denmark is defending a 1% range against the euro. That is more restrictive that the 2.25% bands permissible in ERMII.”
“Unlike the Swiss cap, the narrow range for the krone is endorsed by the ECB. The ECB does not appear committed to defending the narrow 1% band.”
“Denmark's deposit rate (at - 50 bp) was cut three times in the second half of January. There is talk of large speculative players, seeing the kind of franc move after the cap was lifted, are looking for a repeat.”
“The SNB's intervention undermines arguments suggesting that the ownership structure (~55% the cantons and their banks and ~45% publicly traded on the stock exchange) forced it to abandon the cap and stop growing its balance sheet. We suggest this was a tactical decision, not strategic.”
“It chose not to predictably defend a Maginot Line, but has still intervened and expanded its balance sheet. The franc was the weakest of the majors last week. It has continued its weak profile today.”
“Over the weekend, a Swiss paper claimed in an unsourced story that the SNB is adopting an unofficial CHF1.05-CHF1.10 corridor. It is not clear what an unofficial corridor means. Will it defend it? Does such a story get the market to do its heavy lifting for it?”
Key Quotes
“we note that both Denmark and Switzerland appear to have intervened in the foreign exchange market last week to buy the euro. Denmark is defending a 1% range against the euro. That is more restrictive that the 2.25% bands permissible in ERMII.”
“Unlike the Swiss cap, the narrow range for the krone is endorsed by the ECB. The ECB does not appear committed to defending the narrow 1% band.”
“Denmark's deposit rate (at - 50 bp) was cut three times in the second half of January. There is talk of large speculative players, seeing the kind of franc move after the cap was lifted, are looking for a repeat.”
“The SNB's intervention undermines arguments suggesting that the ownership structure (~55% the cantons and their banks and ~45% publicly traded on the stock exchange) forced it to abandon the cap and stop growing its balance sheet. We suggest this was a tactical decision, not strategic.”
“It chose not to predictably defend a Maginot Line, but has still intervened and expanded its balance sheet. The franc was the weakest of the majors last week. It has continued its weak profile today.”
“Over the weekend, a Swiss paper claimed in an unsourced story that the SNB is adopting an unofficial CHF1.05-CHF1.10 corridor. It is not clear what an unofficial corridor means. Will it defend it? Does such a story get the market to do its heavy lifting for it?”