Thursday, August 11, 2011

Today's Major Market Move - Swiss Franc Weakens Over 5% vs. the US Dollar in Today's Session

There was some big news out of Switzerland today when the Swiss National Bank announced that it was considering pegging the Franc to the Euro. Because of the strength of the Franc, Swiss companies that depend on foreigners for sales must be screaming bloody murder. So the SNB is firing away in the dark hoping to 'hit' some kind solution and this is their latest pot shot. It did have an immediate effect, weakening the Franc vs the US Dollar by over 5% and vs the Euro by over 6%. The only currency that weakened more vs the USD today was the most less globally watched Malawi Kwacha.

Click on the table for a larger view.
Click here to view the table with the most recent data.

So the SNB managed to generate a short term spike in the foreign exchange markets which is not particularly hard for a central bank to do in these days of extreme volatility. But will the trend continue and for how long? The SNB has a long ways to go to get the Franc back to levels seen at the beginning of the year.

Click on the chart for a larger view.
Click here to view the chart with the most recent data.

And an even longer ways to go to get it back to the levels seen back in May 2010 when the SNB attempted it's first of what was to be several interventions (the USDCHF was trading at 1.44) . This was discussed in this post back on June 6.

In this post on Aug 2, we discussed how there was a strong correlation between the strengthening Franc and the declining Swiss equity market. Here's an update of the line chart that compares the USDCHF with several Swiss equity indexes.

Click on the chart for a larger view.
Click here to view the chart with the most recent data.

One can see how on the right side of the chart, the equity indexes started moving back up in tandem with the weakening Franc. But to be fair, the Swiss stock market would have most likely been up strongly regardless of the intervention since stock markets around the world were rallying (e.g. the DOW in the U.S. was up 423).

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