CHF, JPY and the burden of a Safe Haven currency

One week after the so discussed UK’s referendum, the after-Brexit is demonstrating to be as difficult as expensive, both for UK and the majority of the EU Countries, with fluctuating markets and volatile foreign exchange markets.

To make the biggest expenses, however, seems to be accidentally the Swiss Franc and the Yen, two Safe Haven currencies, the ones for definition that are purchased during uncertainty, and that feed the Carry Trade during risk-on periods. Lets see what is happening right now.

At the time of writing the SNB decided to intervene on the markets in order to restrain the uptrend for the Helvetic currency which, after the UK’s referendum, inverted his downward trend started a few months ago and beloved by the Swiss National Bank. The upside move has been feeded by the investors purchases who, buying Franc on the market, led the price up, threatening the final objective of the SNB which doesn’t want a too costly franc, which would hinder export and tourism.

While at the beginning of June the EUR/CHF was at  1.10-1.11 level, the latest weeks led down the cross towards 1.06 before the SNB intervention to bring the pair at the actual 1.08.

A CHF appreciation not only against Euro, but also, obviously, against the Sterling, with the GBP/CHF cross which came to touch 1.31, while nothing to say about the US Dollar which remains almost at the same level.

It seems that the Switzerland is now (again) victim of its success, with the SNB in the uncomfortable position to want a weak Franc, against the market that don’t want to stop the Franc purchases. President Jordan in the meantime, confirm that the Bank is still ready to act at every moment, but the SNB balance sheet is starting to be difficult to sustain.

SNB Chairman Jordan talks to the media during a news conference in Bern

Swiss National Bank (SNB) Chairman Thomas Jordan talks to the media during a news conference in Bern, Switzerland April 6, 2016. REUTERS/Ruben Sprich

Very close situation for the Yen, with the Japanese government strongly undecided if intervene or not on the market in order to slow down the appreciation of its local currency which started to increase his price following the Brexit decision. Last Friday the Japanese currency broke the 100 level with the Dollar (and the 110 one with Euro) which represent a limit after which the BOJ should intervene.

The Yen has moved to the Spring 2013 level, canceling the Japanese quantitative easing effects and threatening export and profits of big companies, such as automakers. (without counting effects on the inflation expectations).

From the good manners, with verbal warnings from PM Abe, they could go to the hard ones with a real move from the BOJ which is now also penalized from the Trump’s US campaign, who defined China and even Tokyo manipulators of the exchange rates.

In the meantime big banks like Nomura and HSBS reduced their expectations for the exchange rate from 122 to 104, the first, and to 95 the second.

This time the blame is not referred to the Abenomics, but the credibility of the commitments regarding financial improvements and growth of the Country seems fading.




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