Thursday, March 12, 2009

Inflation watch. Wait for US Dollar to move: Swiss intervention sparks talk of ‘currency war’. DXY, GDX, HUI, XAU, SLW, TNR.v, RMK.v, GBN.v, CGH.to

Just wait until competition who will print more money begins: the only way out of piles of debt is to water it down by Inflation.
"The Swiss National Bank sparked talk of a global currency war on Thursday as it surprised investors by intervening to bring down the Swiss franc.
The Swiss franc’s safe-haven status has been heightened by recent market turmoil, pushing it close to its record high around SFr1.43 against the euro in the past few weeks.
But the franc fell to its lowest level this year after the Swiss National Bank said the currency’s strength represented an “inappropriate tightening of monetary conditions” as it battled against a slowdown in the Swiss economy.
“In view of this development, the SNB has decided to purchase foreign currency on the foreign exchange market to prevent any further appreciation of the Swiss franc against the euro,” the central bank said.
The central bank said it had implemented its decision, with traders confirming that the SNB had been active in the market, selling the Swiss franc against the euro and the dollar.
This represented the first time a leading central bank has intervened in the foreign exchange markets since 2004, when the Bank of Japan sought to weaken the yen.
The franc dropped 2.6 per cent to SFr1.5192 against the euro and dropped 3.2 per cent to $1.1894 against the dollar.
Analysts said the move was likely to increase talk of a bout of competitive currency devaluation in the face of the current financial crisis.
“Let the currency wars begin,” said Chris Turner at ING Financial Markets. He said countries around the world faced with the constraint of zero interest rate levels might now think it acceptable to intervene formally to weaken their currencies, in order to ease monetary conditions.
“Of course, those with higher export shares in GDP will have monetary conditions more sensitive to FX rates. Japan will probably be at the head of the queue,” Mr Turner said.
The SNB said economic conditions had deteriorated sharply since its last policy meeting in December and that there was a risk of deflation over the next three years.
“Decisive action is thus called for, to forcefully relax monetary conditions,” the central bank said.
The SNB also cut its interest rates by 25 basis points, taking its three-month Libor target range down to 0-0.75 per cent.
It also announced plans to adopt a quantitative easing approach to monetary policy, saying it would increase liquidity substantially by engaging in additional repo operations and buying Swiss-franc denominated bonds issued .
Analysts said the move towards quantitative easing was sparked by drastic changes in the central bank’s forecast for growth, which is now expected to fall between 2.5 per cent and 3 per cent in 2009, much worse than its previous forecast of a drop of between 0.5 and 1 per cent."
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