There is a straightforward answer to the question in the headline: more money has been trying to get into Switzerland than get out, which didn’t affect the exchange rate as long as the Swiss National Bank bought foreign currency. As soon as they stopped, the exchange rate adjusted to balance the new set of flows. But a detailed look at the gross flows in and out of the country provides a more nuanced and interesting picture.
In the heady days of 2010-2012, when it seemed as if the European Project was always one secret weekend meeting away from exploding in a fireball of poisonous politics and innumerate economics, Switzerland looked like a nice place to put your money. It was especially attractive if you were a resident of a stressed euro area country worried about wealth taxes, bank failures, currency re-denomination, or all of the above. Read more
This volatility is to low
This volatility is too high
This volatility is … holy cow … the SNB just removed its currency floor?
Investors in the big trading banks are spending the week discovering that financial institutions are the Goldlilocks of the volatility world after the likes of JPMorgan, Goldman et al released some disappointing fourth-quarter earnings despite an uptick in vol. With banks having spent much of the past five years moaning that volatility was too low to eke out trading profits, it turns out that in the fourth-quarter volatility was just a bit too high to make money. Or not quite the right kind of volatility. Or whatever. Read more
Here’s the Swiss franc at its weakest level against the euro since the Swiss National Bank put its cap into place in September 2011:
An interesting nugget from Nomura’s Geoffrey Kendrick on the Swiss National Bank data released earlier, as it pertains specifically to sterling:
On GBP specifically we estimate that SNB buying accounted for two-thirds of all non-resident buying of gilts in Q3.
It’s Swiss National Bank reserve figures Wednesday! That glorious day when we get to see how exactly the ingredients of the SNB’s cake have changed. Or to put it more literally, how have they been dealing with the masses of euro assets they are collecting.
Here’s the table in question. What it shows is that the SNB has cut its euro share of FX reserves to 48 per cent from 60 per cent in the second quarter of 2012 while the proportion of sterling and dollars being held increased.
Gasp? Well… yes. Read more