Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19
Central Banks Move To Keep The Global Markets Party Rolling – Part III - 14th Aug 19
You Have to Buy Bonds Even When Interest Rates Are Low - 14th Aug 19
Gold Near Term Risk is Increasing - 14th Aug 19
Installment Loans vs Personal Bank Loans - 14th Aug 19
ROCHE - RHHBY Life Extension Pharma Stocks Investing - 14th Aug 19
Gold Bulls Must Love the Hong Kong Protests - 14th Aug 19
Gold, Markets and Invasive Species - 14th Aug 19
Cannabis Stocks With Millennial Appeal - 14th Aug 19
August 19 (Crazy Ivan) Stock Market Event Only A Few Days Away - 13th Aug 19
This is the real move in gold and silver… it’s going to be multiyear - 13th Aug 19
Global Central Banks Kick Can Down The Road Again - 13th Aug 19
US Dollar Finally the Achillles Heel - 13th Aug 19
Financial Success Formula Failure - 13th Aug 19
How to Test Your Car Alternator with a Multimeter - 13th Aug 19
London Under Attack! Victoria Embankment Gardens Statues and Monuments - 13th Aug 19
More Stock Market Weakness Ahead - 12th Aug 19
Global Central Banks Move To Keep The Party Rolling Onward - 12th Aug 19
All Eyes On Copper - 12th Aug 19
History of Yield Curve Inversions and Gold - 12th Aug 19
Precious Metals Soar on Falling Yields, Currency Turmoil - 12th Aug 19
Why GraphQL? The Benefits Explained - 12th Aug 19
Is the Stock Market Making a V-shaped Recovery? - 11th Aug 19
Precious Metals and Stocks VIX Are About To Pull A “Crazy Ivan” - 11th Aug 19
Social Media Civil War - 11th Aug 19
Gold and the Bond Yield Continuum - 11th Aug 19
Traders: Which Markets Should You Trade? - 11th Aug 19
US Corporate Debt Is at Risk of a Flash Crash - 10th Aug 19
EURODOLLAR futures above 2016 highs: FED to cut over 100 bps quickly - 10th Aug 19
Market’s flight-to-safety: Should You Buy Stocks Now? - 10th Aug 19
The Cold, Hard Math Tells Netflix Stock Could Crash 70% - 10th Aug 19
Our Custom Index Charts Suggest Stock Markets Are In For A Wild Ride - 9th Aug 19
Bitcoin Price Triggers Ahead - 9th Aug 19
Walmart Is Coming for Amazon - 9th Aug 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Apparently You Can’t Just Surrender In a Currency War

Currencies / Currency War Feb 04, 2015 - 10:35 AM GMT

By: John_Rubino

Currencies

Two weeks ago Switzerland abruptly decided that it couldn’t keep buying billions of euros every month just to maintain a somewhat arbitrary peg with that currency. It stopped trying, allowed the Swiss franc to trade according to market forces, and watched it soar.

At the time there was some question about whether an export-centric economy like Switzerland could handle a soaring currency’s impact on its major industries. In other words, is it even possible to surrender in a currency war?


This week we got an answer. At least for Switzerland, it is not possible. From Bloomberg:

Switzerland Rejoins Currency Wars

Two weeks after Switzerland stunned currency traders by abandoning the franc’s peg to the euro, it seems that the central bank is quietly getting back in the market. With central banks from Denmark to Singapore to Canada easing monetary policy in recent weeks, the Swiss authorities face an even bigger battle trying to restrain their strengthening currency.

The Schweiz am Sonntag newspaper said during the weekend that the Swiss National Bank is now targeting a corridor rate for the franc of 1.05 to 1.10 per euro, compared with the 1.20 level it abandoned Jan. 15. The bank is declining to comment; but if it is trying to keep the franc from becoming stronger than that level against the euro, it seems to be struggling to drive the currency into the desired range:

The aftershocks of the peg abandonment, which triggered squeals of horror from Swiss exporters, are still rumbling through the nation’s economy. Figures released yesterday showed that a benchmark index of manufacturing activity slumped to 48.2 in January, down from 53.6 a month earlier and undershooting economists’ expectations for a 50.6 reading. A number below 50 signals contraction, and every component from order pipelines to stocks of goods to employment declined. The manufacturing survey was taken just after the currency defense was abandoned, according to Martina von Terzi, an economist at Unicredit in Munich. She expects the Swiss economy to grow by just 0.1 percent this year, with quarter-on-quarter contractions of 0.7 percent in the first three months and 0.3 percent in the second. So it’s clear why Switzerland doesn’t want an appreciating currency to trash its economy.

Having retired once with a bloody nose, however, it isn’t clear why the Swiss central bank thinks it can rejoin the fray without taking another beating. Maybe it hopes that the currency traders who lost millions of dollars when the peg was dropped won’t dare to speculate again on the franc. Maybe it considers 1.05 francs per euro defensible in a way that the old peg of 1.20 wasn’t. Maybe it anticipates less pressure now that the European Central Bank has finally conceded to the need for quantitative easing.

Bloomberg nails the two main points here. First, allowing one’s currency to soar is the same thing as importing the rest of the world’s deflation. As a consequence, your exports plunge, manufacturing slows, the economy dips into recession and leaders get tossed out in the next election.

Second, keeping a currency weak enough to be “stable” in an aggressively devaluing world depends, in part, on the markets believing that you’ll follow through. Everyone is pretty certain that the eurozone and Japan, for instance, are going to flood the world with their currencies in 2015, regardless of the consequences. But the Swiss, having burned foreign exchange traders big-time just two weeks ago, have a lot less inflationary credibility. So now, as they try to maintain their new peg (calling it a “corridor” doesn’t change the reality of the policy), foreign exchange traders are happily buying up all the new francs that the Swiss National Bank creates, assuming the same pressures that caused the last surrender will cause the next one. They’re probably right, making the franc a really good bet for another 20% pop in the year ahead.

So now the question becomes, once you’ve tried to surrender in a currency war, is it possible to rejoin the fray? We’ll see. Either way, the Swiss are earning their own chapter in future economics textbooks.

By John Rubino

dollarcollapse.com

Copyright 2015 © John Rubino - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules