Rate Cut Won't Stem the Swissie's Rise
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Think a little thing like cutting interest rates to near zero will end the Swiss franc's Alpine climb? Think again.
The Swiss franc swooned earlier today after the Swiss National Bank announced measures to cut interest rates to near zero. The move had been eagerly awaited by Swiss businesses who were struggling to cope with the Swissie's 38% - yes - increase against the dollar in the past year.
But don't expect the weakness to last, says Lena Komileva, global head of G10 currency strategy at Brown Brothers Harriman.
"The intervention is likely to work by way of disrupting one-way flows into CHF and discouraging speculative interest, but it is unlikely to change the Franc’s fundamental direction," she wrote in a note to clients. Moves by central banks to diversify reserves away from the dollar and the euro, combined with investor concerns about the strength of the global economy, will likely keep the Swissie on the rise - despite indications from the Swiss National Bank that they're prepared to do more to bring it to earth.
"Given that deleveraging across the US, the UK and parts of the Euro zone has much further to run and global financial fragility is unlikely to disappear, this remains a structurally positive environment for the Swiss Franc."
Your move.
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