SNB, Riks­bank and DNB likely to act to stem any cur­rency gains

The Pak Banker - - FRONT PAGE -

Bold ac­tion from the Euro­pean Cen­tral Bank on com­ing Thurs­day could trig­ger a domino ef­fect of mea­sures by other cen­tral banks that have been fight­ing against the strength of their re­spec­tive cur­ren­cies against the euro, an­a­lysts say. While the Swiss Na­tional Bank, Swe­den's Riks­bank and the Dan­ish Na­tional Bank are the first ones likely to re­spond, oth­ers in­clud­ing the Bank of Ja­pan and the Peo­ple's Bank of China will be closely mon­i­tor­ing the cur­rency im­pact of po­ten­tial ECB ac­tion.

The SNB will meet on March 17, and any ECB mea­sures this week will be key trig­gers for Swiss pol­icy mak­ers' de­ci­sion, ac­cord­ing to Chris Turner, head of for­eign-ex­change strat­egy at ING. The SNB aban­doned the 1.20 Swiss franc cap ver­sus the euro on the as­sump­tion that ECB quan­ti­ta­tive eas­ing would man­age to weaken the com­mon cur­rency.

Fur­ther pol­icy ac­tion from the ECB this week opens up risk that the SNB will also be re­quired to an­nounce a tit-for-tat re­sponse, Rabobank se­nior for­eign-ex­change strate­gist Jane Fo­ley says. The franc is likely to re­spond bet­ter to SNB's neg­a­tive in­ter­est rates and threats of in­ter­ven­tion in pe­ri­ods of ris­ing risk ap­petite, Fo­ley adds.

The euro-franc ex­change rate at 1.0750 is a key level to trig­ger SNB in­ter­ven­tion, Nordea macro strate­gist Aure­lija Augu­lyte says. The SNB could in­ter­vene in mar­kets, and an ex­tra­or­di­nary meet­ing to an­nounce a rate cut would be pos­si­ble if up­side pres­sure on the franc be­comes too strong. Still, cen­tral banks will prob­a­bly think twice be­fore cut­ting rates fur­ther, given the im­pli­ca­tions of neg­a­tive rate poli­cies, Augu­lyte adds. On the other hand, UBS doesn't think the SNB will re­spond with an­other rate cut should the ECB ease fur­ther this week, as the euro-franc ex­change rate level mat­ters more than the rate dif­fer­en­tial with the ECB, fixed-in­come strate­gist Nishay Pa­tel says.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.