Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Zoopla wins back customers from online property rival

Zoopla chief executive Alex Chesterman has branded rival OnTheMarket “a failed experiment”, and said that his property site was winning back customers at a record rate. OnTheMarket was set up last year, aiming to compete with Zoopla and Rightmove, the UK’s two biggest property portals. It allowed estate agents to list their properties more cheaply […]

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Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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BoE stress tests: all you need to know

The Bank of England has released the results of its latest round of its annual banking stress tests and its semi-annual financial stability report this morning. Used to measure the resilience of a bank’s balance sheet in adverse scenarios, the stress tests measured the impact of a severe slowdown in Chinese growth, a global recession […]

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Categorized | Currencies

Switzerland is ‘new China’ in currencies

Posted on July 31, 2012

There is a “new China” active in the currency markets, according to analysts, as Switzerland’s battle to weaken the franc inflates its stockpile of foreign currency reserves.

The Swiss National Bank was forced to buy tens of billions of euros in May and June after the eurozone crisis worsened, creating strong haven demand for the franc and threatening the ceiling the central bank set for its currency last September. The SNB is prepared to buy as many euros as it takes to hold the franc at SFr1.20 against the euro to protect the country’s exporters.

    As a result, Switzerland’s foreign currency reserves have leapt more than 40 per cent this year to SFr365bn ($375bn), propelling it to the sixth largest holder of foreign exchange in the world from ninth last year, behind China, Japan, Saudi Arabia, Russia and Taiwan.

    The proportion of euros held by the SNB also ballooned in the second quarter of the year, rising from 51 per cent to 60 per cent. Foreign currency analysts said the bank was buying SFr3bn worth of euros a day to defend the Swiss franc, with serious knock-on effects for the global forex market.

    “Switzerland is the new incipient China,” said Steven Englander, Citigroup’s head of foreign exchange strategy.

    The SNB is believed to be partly responsible for recent moves in major currencies including the Australian dollar and the Swedish krona as it seeks to offload some of its euros.

    But that has consequences for other central banks, whose own currencies are rising in value as Switzerland sells its euros back to the market. The Swedish krona has hit a 12-year high against the euro in recent days, while the Australian dollar is at record highs against the single currency.

    “Sweden will need to set monetary policy now with the SNB in mind,” said Geoffrey Yu, foreign currency analyst at UBS.

    Analysts also warned that SNB’s half-year results, released on Tuesday, indicated that the central bank was struggling to rebalance its holdings as it appeared to be buying euros more quickly than it could exchange them for other currencies.

    Figures showed a drop in the maturity of the SNB’s bond holdings from four years to 2.8 years, which analysts said indicated that the bank was taking shorter term positions because it did not know how long it would carry on accumulating euros at the current rate.

    “The picture is one of a central bank that’s not coping with how much money is coming in,” said Kit Juckes, foreign currency analyst at Société Générale. The SNB declined to comment on its foreign exchange management strategy.