Swiss Franc Remains Weak Following Central Bank Intervention

The EUR/CHF continues to strengthen as the USD/CHF is consolidating huge gains made earlier thanks to the Swiss National Bank intervening to prevent the risk of further deflation.  This drastic move occurred as the firm CHF was clearly a concern for the SNB.  Behind possibly the worst Swiss recession in 30 years, the export-dependent economy needed a spark and this move will hopefully provide that.

As this is the first move by a central bank in this global economic crisis, the question now is who, if anyone is next?  There has been much discussion for the last few months about Japan intervening.  The deepening economic crisis and risk aversion had allowed the JPY to firm to alarming levels.  However, we have seen a slight swing as the JPY did lose steam and soften up with the Japanese fiscal year coming to an end and JPY selling.  But the strong JPY threat remains with comments from former Japanese vice Minister of Finance Sakakibara “Mr. Yen” predicting that the USD/JPY will range from 70 to 100 in 2009.

Masahiro Sato, joint general manager of the treasury division at Mazuho Trust & Banking Co. does not see Japanese intervention anytime soon:

Competitive currency devaluation is not likely in Japan now because the risks of sparking trade friction are too great. The Swiss can get away with this because of the relatively small size of their economy and the limited role they play in the global economy,” Sato said. “A weaker currency is not necessarily a cure-all, because it can fuel capital flight. Japan certainly doesn’t want to take on that risk. Japan’s homework (task) from the G7 is fiscal stimulus, so it should focus on that.

The EUR/CHF is just off highs (1.5395) made hours ago.  The USD/CHF has failed to get back to yesterday’s high as renewed risk appetite has somewhat weakened the USD.

Update at 8 am EST: FX Dealers are reporting that the Swiss National Bank is again in the markets. This may lead to heavy activity in the CHF pairs. Watch for volatile movements, higher risk and at the same time the possibility of good short term trading opportunities.

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