Special Feature
The Swiss National Bank, for example, had to directly intervene in the market providing Swiss francs for the excess demand for its currency — an unprecedented measure for this model of fiscal and monetary prudence. The bank imposed a floor on the cross EUR/CHF of 1.20 to avoid excessive appreciation of the Swiss franc and has been accumulating foreign exchange reserves as it sells Swiss francs and buys the respective pair currency in a continuous battle to maintain the peg. In the US so called “Helicopter” Ben Bernanke has been aggressively expanding the monetary base, buying everything he can lay his hands on, from government bonds to mortgage securities. As yet, he has not intervened directly in the equity market, but give it time..! The Bank of England has followed the same policy buying the UK’s domestic debt and suppressing gilt yields at 300 year lows.
In Japan, central bank intervention is now being taken one step further than others and the independence of the BOJ is actually at stake as Shinzo Abe, the newly minted Japanese Premier, is now adopting a very aggressive stance in favour of material yen devaluation. A policy which, certainly in the very recent past, is proving fruitful as the yen is down 22% and 17% in the last three months against the euro and the uS dollar respectively.
TABLE - 3 MONTH PERCENTAGE MOVES IN THE MAJOR CURRENCY PAIRS
“iN 1931, iT WAS iN FACT THE uk THAT STARTED A CuRRENCy WAR AND WHiCH CuLMiNATED WiTH THE END oF THE goLD STANDARD iN 1936.” 34 | www.financial-spread-betting.com | March 2013