Two events roiled the currency market this morning. First, the GDP numbers out of many European economies were weaker than expected. The softness of European economic activity has stirred the complacency of recent buyers of EUROs and caused some unwinding of the EUR/YEN and EUR/GBP cross rates. The second event that unnerved recent buyers of EUROs was a comment by the ECB Governor from Portugal, Vitor Constancio. It was reported that Mr. Constancio said in response to recent Euro strength that “… negative rates always possible.”
Posts Tagged ‘Swiss Franc’
***The Canadian situation became more muddled today with the release of its GDP. BOC Governor Mark Carney and FM Flaherty would love to raise rates in an effort to halt the rise of private debt, but today’s GDP showed a 0.1% decline in growth for the month. It is a real dilemma as the strong Canadian dollar is impacting some sectors of the economy and thus a rate increase to stem credit growth will have a strengthening impact. The GDP release blamed the slowing global economy for the downturn but it has not impacted domestic credit growth because of ultra-low rates. How will the Canadians solve this dilemma as it wants to slow the housing sector to help forestall private loans? This conundrum will test Carney’s position as a leading central banker. Let’s watch to see if it is possible to head off asset appreciation without causing system wide economic pain. Greenspan and Bernanke claim it is not possible. Governor Carney, here’s your chance to help set central banking on a better course.
Friday saw a continuation of the EURO RALLY as the most despised currency was the subject of massive short covering. For months many analysts have been opining that the EURO was heads to PAR with the DOLLAR. The trade looked promising as 2011 came to a close but in 2012 the EURO has rallied against the DOLLAR. Until last week, the EURO had weakened on many of the CROSSES but even those began to significantly correct as the EURO rally against the DOLLAR continued. The action on Friday saw the EURO rally against all currencies except the SWISS FRANC as that cross hovers near the SNB‘s line in the sand level of 120 EUR/CHF. Late in New York, the EUR/CHF closed at 120.48 so the Swiss National Bank has to be concerned that traders are going to challenge the veracity of the SNB’S SWISS FRANC POLICY.
Today, the finger-pointing in Europe continued as Bank of France Governor Christian Noyer scolded the ratings agencies and complained that it was the U.K. that should lose its AAA credit rating before France. Let us be clear: Christian Noyer is way out of line. First, the French are the premier bashers of the over aggressive role that Moody’s, S&P and Fitch play on the international financial scene. But when the power of the agencies can be used against a foe, then NOYER can point the finger that the BRITS are much weaker than the French and need to be punished. Secondly, NOYER shows how inept he is as a central banker because the finger-pointing does nothing to make the case of why France should not suffer a downgrade.
It is very easy to fall prey to the German view of the European debt crisis: Blame the profligate PIIGS for living beyond their means and borrowing to support a lifestyle based on leisure. There is of course great truth to this but it was the Northern European banks that lent the money in a ready fashion. The GERMAN and DUTCH current account surpluses had to be lent somewhere and with the Chinese and Japanese monopolizing the profligate lifestyles of the Americans, Germany turned to their European comrades. Belonging to the EURO and, thus, ECB zone of finance, Commerzbank, Deutsche Bank, Rabobank and SocGen all felt comfortable buying the AAA debt of Spain and Italy and of course the three little PIGs.
There’s talk abound about the possibility of exchange controls. The ability to slow the inflow and outflow of funds is being discussed from Greece to Germany and Switzerland. It is no secret that many citizens in the peripheries are moving EUROS out of their domestic banks and into German, Swiss ans British domiciled entities. The German paper HANDELSBLATT had an article during the weekend suggesting that the SNB and Swiss government are readying a plan to undertake exchange controls and a true negative interest rate regime. The overly strong SWISS FRANC has placed a great deal of stress on the Swiss economy and the Swiss authorities want to head off any demand for FRANCS if the EURO were to fail.
The potential for a big market-moving story was in the works but the usually aggressive, boisterous Jim Cramer, in his interview with Treasury Secretary Timothy Geithner, resembled a tea party at an American Girl store. It seems that when Cramer fears being audited he goes quiet. The questions about Europe were milquetoast, leading to ridiculous answers–”I am sure Europe will be there in three years.” It proved to be worthless and provided little clarification on the issues of “THE TWIST” and how the U.S. was going to act in concert with the Europeans to help resolve the effects of the severe credit crisis that is impinging global financial institutions and certainly European economic growth.
(and I Thought Madoff Was In Jail)
It seems that Vice President Biden used some of his miles to head to China for his summer vacation. The Chinese have been vocal critics of the U.S. and its profligate ways. As the largest foreign holder of U.S. Treasury debt, the Chinese have more than a passing concern in the outcome of U.S. economic and fiscal policy. The Chinese are not the single largest holder of U.S. debt as that award goes to the FEDERAL RESERVE. The Obama administration sent BIDEN to reassure the Chinese that the U.S. still maintains a FICO score more than 720.