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’The Swiss National Bank is pegging it
“prepared to buy foreign currency in unlimited quantities…”
Carried away in Switzerland [updated]
Negative rates have arrived! In Switzerland, anyway.
Which means the risk of the Swiss franc becoming a funding currency for carry trade — à la the Japanese yen — is very real.
That said, volatility is still the issue.
Basis swaps and beer
One way to visualise the pressure at the short end of the euro basis swaps curve — indicating trouble getting short-term dollar funding for an unknown number of European banks there — is to go 3D.
Such as here.
A dollar bidder at the ECB
OK — caveats first. It’s only one bank and the amount it’s tapped at Wednesday’s ECB dollar swap, $500m, isn’t exactly a systemic sum.
But a taboo has been broken…
Banks appear to have feared the stigma of approaching the ECB for dollar funding so far,
A sterling safe haven
Here’s a safe haven idea you may not have thought of.
The Great British Krona.
Standard Bank’s Steven Barrow points out that sterling has fallen, on a trade-weighted basis, much more than the other major currencies:
The unintended tightening
Not good, not good at all.
From Morgan Stanley’s US rates team on Tuesday:
The funding markets had been stressed previously in April-June 2010 due to risks associated with the sovereign debt crisis in Europe.
Swiss bank avalanche
This might be a deferred sell-off following Monday’s holiday in Switzerland. In the words of one analyst though, they’re ‘stuck between a soft dollar and a hard franc…’
(That’s because the wealth management arms of both banks have mainly US dollar revenues and Swiss franc costs).
Selling Italy, buying UK [updated]
Compare….
Contrast…
That’s a modern record low for the 10-year gilt yield and a record eurozone high for its Italian peer. Outwardly, it’s an amazing gulf in some respects as both sovereigns are doomed to low growth.
Inter-yention stations
It wouldn’t be a proper dollar panic unless there were rumours, uncertainty and fear that the Bank of Japan is intervening in the yen:
So here we are. Rumour, uncertainty, fear:
Gold’s not as stretched as you might think, Citi says
One for the gold bugs, this.
The possibility of a surge in the price of gold is growing, according to the commodities team at Citigroup.
In fact, they say, the probability of a short-lived spike in gold is now above 25 per cent (up from 5 per cent just a few weeks ago) and that’s even without a worst-case economic scenario actually happening.
Inter-bank, minus the bank
That the European Central Bank has stepped in to replace much of the eurosystem liquidity that used to be provided by the banks’ themselves is well-known. Did you know, however, that one measure of the ECB’s liquidity provision is now higher than in the depths of the 2008 financial crisis?
It’s the ECB’s so-called ‘recycling’ of bank deposits,
Shadow currencies lurking behind a new dollar smile
G3 currencies are just so … démodé.
Where once the US dollar, euro and yen indisputably dominated global currency trading, there are now alternatives. The S3 currencies. So says UBS strategist Syed Mansoor Mohi-uddin in a short note.
Nordea hunts down a Norwegian interest rate typo
Price action in the Norwegian krone on Tuesday:
Last week Norway’s central bank said it was holding interest rates at 2.25 per cent, but indicated through various data sheets and background material that an interest rate rise could come in either August or September.
$8,000bn speaks reserve currencies
The dollar is down, the euro is out, and SDRs are in. Results from UBS’s reserve management survey, canvassing institutions with a collective $8,000bn of assets:
A currency trader’s take on Bitcoin
A major exchange for Bitcoin — Mt.Gox — was hacked last week.
The cyber-attack sent the virtual currency’s exchange rate temporarily reeling from about $17.50 to pennies. More importantly it sparked some fresh concern about Bitcoin’s reliability and security.
George Clooney roils the Bitcoin market
Alright, alright — someone calling themselves George Clooney appears to have roiled the Bitcoin market.
Bitcoin — the virtual currency — has had a tough time of it lately. Having recently gained some mainstream prominence and become the world’s fastest appreciating currency,
And all the liquidity in all the world…
Ongoing Greek turmoil. The end of QE2. Slowing growth. An oversupply of credit. A US default.
The list of current developments to keep investors up at night could go on.
No surprise then, that the dollar’s been rallying on the back of risk-reversal — a development which in itself could feed through to plenty of other asset classes.
Bitcoin’s Black Friday
When we first mentioned Bitcoin — the virtual currency — it was hovering at $8 against the US dollar.
Last week it reached $28. And we first mentioned Bitcoin last Monday — seven days ago.
The digital currency has not gone unnoticed by the City either.
Virtual money, from real central bank mistrust
What happens when you cross computer geeks with populist outrage at central banks?
Bitcoins happen.
New Scientist reports in its latest edition that a new virtual currency is harnessing peer-to-peer networking and high-tech computer-run algorithims to rival central-bank issued money.
At least you’re not in Belarus
Country asks for another IMF bailout, after screwing up the first one. There are few signs of spending coming under control. The neighbour which really holds the purse strings demands ever more privatisation.
RMB rising
The past, present, and future of international currency dominance for Dummies:
Those slides come via the World Bank’s big report last week about the expected rise of the six largest emerging markets.
‘Is it dangerous to borrow dollars?’
Or, remembering the crisis dollar swap lines, and noting a funding currency elephant in the room for Australian and Swedish banks.
Moody’s downgrade of four Australian banks on Wednesday was serendipitous in a way.
Fallout from a flock of Black Swans
What’s that saying?
You wait for a Black Swan for ages and then three show up at the same time?
Citi FX strategist Steven Englander noted last week — just a few days before Japan’s disastrous earthquake sent asset prices swinging — that “investors are tired of being told to hedge against risks that have not emerged.”
Mrs Watanabe fears a global market dislocation
Talk of Japanese investors repatriating their foreign exchange holdings continues.
And with headlines like “Japan’s Mrs. Watanabe says: ‘hold off on carry trade,” how could it not? Hold the thought,
The derivatives hour for the Japanese yen
Variance swaps strike again!
Did anyone notice that the curious timings in Wednesday yen currency-cross slumps? Societe Generale’s head of currency research, Kit Juckes, certainly did:
Overnight, the news flow out of Japan continued to deteriorate in a high stress environment defined by the 27-40 regime in the VIX.
What’s moving the yen?
The yen reached historic highs against the dollar late Wednesday.
It’s currently hovering around the 79.10 to the USD mark. The chart of recent action is pretty special though. Compared to Wednesday’s drop,
International yen rescue [updated]
Updated (10:04 GMT): Spotted sometime around 10pm GMT, the Yen reaching a record high against the dollar: ¥79.30.
The all-time low of ¥79.78 (set in 1995) is now within spitting distance.
So,