chf fundamentals

Swiss Franc, Japanese Yen Plunge as SNB Announces Currency Intervention - BOJ Could Follow Suit

Thursday, 12 March 2009 21:15:14 GMT  |  Terri Belkas, Currency Strategist

The Swiss franc plummeted across the majors on Thursday morning after the Swiss National Bank (SNB) announced their expected rate cut and surprisingly revealed plans to intervene in the currency markets. The SNB reduced their 3-month Libor target range by 25 basis points down to 0.0 percent - 0.75 percent with the goal of getting the rate down towards the bottom of the range at “approximately 0.25 percent.” However, the bigger market-mover was the SNB’s statement that they would “purchase foreign currency on the foreign exchange market, to prevent any further appreciation of the Swiss franc against the euro” and also said that they would “purchase Swiss franc bonds issued by private sector borrowers in order to bring about a relaxation of conditions on the capital markets.” As we mentioned yesterday, EUR/CHF broke above intraday trendline resistance at 1.4750 on Wednesday morning, and based on the fact that the SNB will likely continue working to prevent the Swissie from appreciating, a test of the 200 SMA at 1.5516 seems probable.

It is also worth considering that the SNB’s announcement may have opened the door to potential for the Bank of Japan to intervene as well. Like the SNB, the BOJ has previously noted the negative implications of the appreciation of the Japanese yen, as the higher value hurts demand for exports in the trade-dependent economies. This is part of the reason why the Japanese yen was the second-weakest of the major currencies, falling roughly 1 percent against the Australian dollar, Canadian dollar, British pound, and euro. One of the other factors behind the drop in the yen was the surge in risk appetite, as commodities rocketed higher with oil up over 10 percent while the Dow Jones Industrial Average rallied 3.46 percent to close above resistance at 7,000. These moves may signal further strength for traditional “risky” assets like stocks and forex carry trades, and as a result, additional declines for the Japanese yen.

Related Article: DailyFX Insight - SNB Rate Cut


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