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Franc (CHF) Cap Likely To Last Until 2015, US Dollar Slips

Published: 18 Nov at 5 PM Tags: Euro, Dollar, America, Eurozone, Australia, USA, Germany, India, Japan, Switzerland,

As the economic crisis in the Eurozone deepened, investors searching for shelter from the storm turned to the Swiss Franc as a European haven. Consequently the Swiss National Bank opted to set a cap of 1.20 Francs per Euro back in 2011.

But with fears of a total currency-bloc collapse receding and the Euro regaining its footing in the currency markets, industry experts are altering their predictions regarding when the SNB will raise the Franc ceiling.

According to a recent poll conducted by Bloomberg News Agency, over 60 per cent of participants expect the cap to be lifted by 2015, while the remaining majority envisage the cap being lifted in 2014.

However, not all economists are as confident of the 1.20 ceiling being removed.

Attilio Bertini of Credito Valtellinese commented; ‘In my opinion, the Euro-Swiss cap at 1.20 is useless already today and SNB will leave it as a future backstop.’

Meanwhile, economics professor Ernst Baltensperger offered this opinion; ‘Were Switzerland to venture an exit alone, it would run the risk of a drastic appreciation. However, the point in time and form of such a normalisation are completely unclear.’

In a comparatively quiet news day the EUR/CHF pairing experienced modest fluctuations following the publication of current account data for the Eurozone.

Over the next five days the Franc could be affected by Switzerland’s ZEW expectations survey (due out on Wednesday) and the nation’s balance of trade data, scheduled for publication on Thursday.

Of course Eurozone data, including tomorrow’s ZEW economic sentiment surveys for Germany and the Eurozone, will also be of interest.

Currently the Euro is trading against the Swiss Franc in the region of 1.2323.

In other currency news, the US Dollar broadly declined during the North American session as the expectation that the Federal Reserve will refrain from trimming stimulus until at least next year pushed investors towards higher risk assets.

The ‘Greenback’ was also adversely affected by the news that the NAHB Housing Market Index came in at 54 in November rather than the 55 expected. October’s reading was negatively revised to 54.

The US Dollar weakened notably against the Indian Rupee, which closed the local session up 70 paise.

While the Rupee’s strength is largely the result of dovish comments issued by Federal Reserve Chairman candidate Janet Yellen, proactive remarks from Reserve Bank of India Governor Raghuram Rajan also had a positive impact.

As it stands the Rupee is trading against the US Dollar in the region of 62.4100.

Economic data to look out for tomorrow includes the publication of minutes from the latest Reserve Bank of Australia policy meeting and Japanese Merchandise trade balance figures.
As of Monday, 18th November 2013, the Pound Sterling currency rates mentioned within this news item were as follows:

GBP EUR exchange rate was 1.1933, GBP USD exchange rate was 1.6113, GBP AUD exchange rate was 1.72, GBP INR exchange rate was 100.5065, GBP JPY exchange rate was 160.9314, and GBP CHF exchange rate was 1.4709.
Patrick James About Author: (289 Posts)Patrick completed his economics degree just as the global financial crisis struck in 2008. In the intervening years Patrick has made his mark, climbing to a prominent position within a large financial services provider. As part of his role Patrick uses his expertise to advise companies of the best ways to safeguard against currency risk.

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