Macro Highlights February 09th 2015

Analysis - 2/10/2015

Our Investment Research Department publishes a weekly newsletter with a round-up on the main economic developments and news flow.

Dissecting the snb’s forex reserves

The Swiss National Bank (SNB) has just reported the level of its forex reserves at end-January. They stood at CHF 498.4 billion, up only CHF 3.3 billion on the previous month. Since the announcement everyone has been busy with their calculator trying to understand whether the increase is large or not. If it is, that would mean that the SNB is determined to prevent the franc from appreciating disproportionately but also, ironically, that it cannot go on intervening forever. And if the increase is small, that would prove that the franc’s exchange rate has steadied on its own, with currency traders realising a bit belatedly that the franc was overvalued. So, is CHF 3.3 billion a lot or not?

Will the danish krone withstand speculation?

Developments so far this year have highlighted the difficulty faced by central banks that try to control exchange rates. The forex market is looking for the next currency to take to the breaking point. In Europe there are three candidates: the Czech koruna, the Bulgarian lev and the Danish krone. On the face of it, the first two underlying economies do not have the specifications needed to attract massive capital flows. But the case of Denmark is different and begs the question: is the situation of the Danish drone similar to that of the Swiss franc?