THE TELEGRAPH: Switzerland is fighting a losing battle to stop massive inflows of funds from investors fleeing sovereign risk in the euro area and the rest of the world, raising the risk of a violent spike in Swiss franc if global debt jitters return.
The Swiss National Bank (SNB) said it lost over 14bn francs (£8.8bn) in the first half of the year in a forlorn attempt to hold down the currency against the euro.
"If we have a US slowdown with a fresh financial crisis, everybody is going to want to buy the Swiss franc, along with bottled water, tins hats, and a shotgun," said David Bloom, currency chief at HSBC. "Now that Japan’s debt is around 200pc of GDP the franc has displaced the yen as the ultimate safe haven."
The franc has appreciated dramatically against the euro since the debt crisis surfaced in Greece and set off a broader worries about the viability of EMU. It strengthened from CHF 1.52 at the end of last year to a record CHF 1.31 earlier this month.
The SNB spent CHF80bn in one month alone trying to prevent the Swiss economy being pulled into a deflation spiral, but each attempt to buy euros has failed to secure any lasting effect. "They are betting against the fundamental trend, which never really works," said Neil Mellor from the Bank of New York Mellon.
Hans Redeker, head of currencies at BNP Paribas, said the surging franc had been driven by capital flight from the eurozone. "If there is any further tension in the EMU banking system, the franc will immediately rise further."
Handelsblatt reported that German citizens in Bavaria are crossing the border to open franc accunts in Zurich as a precaution, repeating a time-honoured tradition in times of stress. The Swiss economy is too small to absorb large inflows without causing huge disruption.
"Without intervention by the SNB, the franc might be on its way to parity against the euro," said Jürgen Büscher, founder of Büscher Private Asset Management in Zurich. Continue reading and comment >>> Ambrose Evans-Pritchard | Wednesday, July 21, 2010
