Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

Continue Reading

Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

Continue Reading

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 […]

Continue Reading

Banks

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 […]

Continue Reading

Categorized | Currencies

Currency traders waiting on Czexit signs


Posted on September 27, 2016

Czech Stock Exchange And Central Bank As Record Long Recession Continues...A customer selects two hundred denomination Czech koruna currency notes from her wallet in Prague, Czech Republic, on Monday, May 27, 2013. Czech policy makers are in uncharted territory as they debate whether the first koruna sales in a decade are needed to meet their inflation target as the economy has shrunk for five quarters, the longest contraction since at least 1996. Photographer: Martin Divisek/Bloomberg©Bloomberg

The Czech koruna could be just weeks away from relinquishing its title as the world’s most boring currency.

This title is no accident. In late 2013, the country’s central bank took drastic action, setting an upper limit on the currency as a way to deflect deflationary pressures. With benchmark interest rates at the time a whisker above zero per cent, and with no desire to take rates into negative territory, this was really the central bank’s only option.

You need JavaScript active on your browser in order to see this video.

No video

    Its line in the sand is 27. The central bank will not allow the euro to trade below that point against the koruna — and duly it hasn’t. The exchange rate has flatlined, edging slightly closer to the limit of late. The koruna has almost always been a slow-and-steady currency, but this really has taken the tedium to a new level.

    The central bank has succeeded in this largely because of its clear and credible message. Simply warning off the speculators has worked wonders. It has put its money where its mouth is too, though, with reserves doubling to around €70bn since late 2013.

    However, the trauma of the Swiss decision to scrap its currency floor in 2015 has left traders wondering when the Czechs will fold, although any broader impact would clearly pale in comparison to the Swiss stink bomb.

    That time may be approaching. The Czech central bank has committed itself to keeping the floor at least until 2017, but that’s not too far away. Earlier this month, it gave a presentation on the matter, noting that it’s “likely” to keep the limit until the middle of next year, and outlining its plans for an orderly removal of the policy. It will, we’re warned, be “clean” and “one-off” but transparent, and will leave the central bank free to intervene here and there to smooth out any shocks.

    HSBC has already dubbed the policy shift “Czexit” (sigh) and warned that, in theory, it could happen as soon as January — particularly as inflation has been showing signs of life. The forwards market does not exactly smell blood, but it does suggest traders are preparing for a break.

    The central bank has a rates decision coming up on Thursday. You needn’t set your alarm for that one. But it would be unwise to take your eye off this arcane pocket of the currency markets indefinitely.

    katie.martin@ft.com