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Swiss National Bank & Japan intervene to cut demand for safe haven currencies

4 August 2011  •  Source: Mark Bolsom, Travelex

The Swiss franc has risen by almost 40% against the euro since Jan 2010 while the Japanese yen has surged by over 11% versus the US dollar over the past 4 months. With both economies relying heavily on export trade but suffering from unwelcome safe haven demand for their respective currencies, markets witnessed extraordinary reactions on Wednesday. The Swiss National Bank cut interest rates following a surprise meeting followed by Japan intervening in currency markets for the first time since March. Both actions had the desired effect with the franc and yen both tumbling across the board.

Those factors supported the pound’s trade weighted index to 2-months highs assisted by better than expected UK service sector data. In contrast though, the US dollar still remains vulnerable following another batch of troublesome US fundamentals.

The Bank of Japan has brought forward its monetary policy decision from Friday which will no doubt add to market volatility today. The Bank of England should hold rates at 0.5% leaving investors uncertain on future policy until the meeting minutes are released. On the other hand however, the euro may fall should the European Central Bank provide any apprehensive rhetoric following their policy meeting with the area overwhelmed by government debt issues.

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