Since the Swiss national bank ‘took out’ a series of trading pairs with their determination to in effect ‘peg’ the franc, the CHF pairs have been virtually untradeable. Even from a potential position trade perspective many currency investors and speculators have been left scratching their heads as to where we go next…
You’d struggle to find bigger currency news this year than the shift in policy that the SNB announced on Tuesday, however, they may have been trumped with the news that China is considering a shift in policy. Chinese officials have informed European Union business executives that the yuan will achieve “full convertibility” by 2015 the EU Chamber of Commerce in China President Davide Cucino said.
U.S. Vice President Joe Biden might need to remind himself of the phrase “be careful what you wish for”, China has amassed record foreign-exchange reserves of $3.2 trillion by selling yuan to curb its appreciation and €1.5 trillion is USA treasury debt. Biden apparently asked (told) his counterpart Xi Jinping during his state visit on August 18th that China must address its undervalued exchange rate whilst removing import barriers to spur trade and investment. However, a fully ‘floated’ convertible currency would arguably test the dollar’s ultimate reserve status far more than the Euro has. The yuan advanced 0.12 percent to 6.3863 per dollar in Shanghai, according to China Foreign Exchange Trade System. The currency has gained 6.4 percent in the past year and touched a 17 year high of 6.3705 on Aug. 30. Its 0.9 percent advance in August was the biggest in 2011.
President Obama will address Congress later today on his $300 billion plan which includes tax cuts, infrastructure spending and direct aid to state and local governments. Fed Chairman Ben Bernanke will also discuss the U.S. economic outlook after Chicago Fed President Charles Evans yesterday called for more stimulus.
European Central Bank President Jean-Claude Trichet is likely to resist calls to cut Euroland’s benchmark interest rate today, he may opt to increase the supply of cash to euro-area banks as the region’s debt crisis worsens. Policy makers meeting in Frankfurt this afternoon should keep the key rate at 1.5 percent. The ECB may lower its inflation and growth forecasts, signalling rates are now on hold after two increases this year. Similarly the UK Bank of England is likely to keep the base rate at 0.5% for a record series of months. Bank of England policy makers may also consider the need for more stimulus if they predict global markets may worsen, setting aside their inflation risks as the ‘recovery’ threatens to unravel.
Ahead of interest rate decisions and potential policy announcements regarding further QE the European STOXX index is currently up 1.1%, the DAX 0.43%, the CAC 1.1% and the FTSE is up 0.46%. Asian markets were less bullish overnight, the Shanghai falling by 0.69%, the Hang Seng by 0.67% the Nikkei advanced by 0.34%. The SPX daily future is suggesting a flat opening, no doubt all eyes are on the Obama and Bernanke speeches to come.
Currencies have been broadly flat with the exception of the Norwegian Krone. Norway’s krone will gain further as investors “desperate” for protection against a deepening European debt crisis turn to one of the few haven markets that isn’t overvalued, according to Henrik Gullberg, a London-based strategist at Deutsche Bank, the world’s biggest currency trader. The krone is the best performing major currency against the dollar, the euro and the yen since Standard & Poor’s August 5th downgrade of U.S. debt. The krone rose as much as 2.3 percent to the euro after the Swiss National Bank announced its cap this week, and surged 10.2 percent against the franc. It gained 1.1 percent versus the euro yesterday before trading down about 0.3 percent at 7.5927. The krone has strengthened 0.3 percent to 7.572 per euro in early trading this morning.
Notwithstanding the key interest rate decisions from European central banks the other major data releases from the USA include initial and continuing job claims. This number will pre-empt President Obama’s ‘New Deal’ speech. Given that NFP numbers were disastrous last week there is little sign of optimism. The USA trade balance and the levels of consumer credit data releases will also provide key indications of the strength of USA recovery.