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Rates Held, But Next Move Up

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To take the heat out of the consumer and fit in with international picture.

Add this to Carry Trade news:

MRS Forex : CHF no longer a carry trade?

07-Mar-2006 08:23

By Nicholas Hastings


The Swiss franc's brief career as a

funding currency may already be over.

With the Swiss economy strengthening

again and the Swiss National Bank

likely to push interest rates higher

later this year, the franc hardly

appears suitable.

"Why market participants believe the

Swiss franc might be a better bet as a

funding currency is somewhat puzzling,"

commented Derek Halpenny, senior

currency economist with Bank of

Tokyo-Mitsubishi in London.

"We believe a potential reversal of

recent extreme Swiss franc weakness is

probable," said Steven Saywell, senior

currency strategist with Citigroup in


"There doesn't appear to be strong

evidence of a wholesale switch from yen

funding to Swiss franc funding on

currency trades," he added.

All the same, this didn't stop

investors from considering the Swiss

currency as a probable replacement for

the Japanese yen as their carry trade

of choice.

With Swiss rates down at only 1%, the

currency did look like a possible

alternative to yen, which offers rates

down at nearly 0%, when the Bank of

Japan started talking of lifting its

ultra-easy monetary policy.

"Prospects for higher funding costs

and yen appreciation increase the risks

associated with yen-funded trade,"

Saywell said, referring to investor use

of cheap yen to buy assets in

high-yielding currencies.

Evidence of the switch from yen to

franc came with last Friday's data from

the futures pit of the Chicago

Mercantile Exchange, showing that

speculators hadn't only slashed their

large short yen positions in the week

to last Tuesday, but they had pushed

their short franc positions to the

highest level recorded since the data

was first collected in 1999.

During that period, the franc was

pushed down to 1.3250 to the dollar

from about 1.3050.

"This is in line with our view that

the Swiss franc has been used as a

cheap funding currency to a greater

degree as the yen becomes a bit too

volatile for some," said Gavin Friend,

a currency strategist with Commerzbank

in London.

Since then, however, the franc has

rebounded back to under 1.3000 to the

dollar as the yen itself has lost its


Not only have expectations of a Bank

of Japan shift in policy as early as

this week faded because of political

objections, but more investors are

taking the view that even if the bank

starts to reduce money-market liquidity

now, the process will be slow and

protracted and interest rates

themselves won't actually be increased

for many months to come.

In a speech to the Japanese Diet

Monday, Prime Minister Junichiro

Koizumi warned that the bank can't

afford to derail the economy by

tightening policy prematurely.

So, while investors were getting

reminders that the yen's attraction as

a funding currency probably isn't over

yet, they were also getting a warning

that the franc may not be such a good

replacement after all.

Although growth slowed in the fourth

quarter of last year from the third,

economic data in 2006 have been more

positive again.

Over the last week or so, both the

latest Kof survey of business sentiment

and the purchasing managers' index have

come in higher than expected and raised

prospects for an economic recovery.

Earlier today, the jobless rate fell

to 3.8% last month from 3.9% in January

amid reports that further improvements

can be expected.

"Swiss National Bank President

Jean-Pierre Roth himself has indicated

that by stating that the 'economy is

clearly on track,'" said Bank of

Tokyo's Halpenny.

"The SNB is clearly in a position to

keep raising rates gradually," he

added, noting that this contrasts with

the political pressure the Bank of

Japan faces to keep rates near to zero.

With the SNB likely to raise rates

another 25 basis points as early as its

next meeting March 16, there is plenty

of scope for an unwinding in the Swiss

franc short positions that have built

up in the last few weeks.

By 0745 GMT, the dollar was up at

CHF1.3040 from CHF1.2984 late yesterday

in New York, according to EBS.

The euro, meanwhile, slipped back down

to CHF1.5587 from CHF1.5604.

Nick Hastings; Dow Jones Newswires


[email protected]

0823 GMT Mar 07 2006

and this today on Jap Rates;

MRS Asia Forex : Yen falls; BOJ end easy policy

09-Mar-2006 07:16

The yen fell versus the dollar and

euro in a seesaw session in Asia today

after the Bank of Japan terminated its

quantitative easing policy and

confirmed that short-term interest

rates will remain low for some time.

Before the decision, Japanese

exporters, model funds and Japanese

bank dealers cautiously sold dollars

for yen in small lots, sending the US

unit to a session low of Y117.55 on


Model funds buy and sell currencies

automatically based on trading cues

generated by computer programs.

The single European currency also

drifted to a session low of Y140.30

against its Japanese counterpart.

However, the dollar recouped its

losses versus the yen to trade at

Y118.20 as the BOJ released the details

of its policy decision. The euro also

gained versus the yen to trade at


The BOJ's decision ends five years of

a policy under which short-term

interest rates were anchored near zero

and the financial system was flooded

with cash.

However, because Japanese interest

rates will still be very low, the move

does almost nothing to erode the

dollar's interest rate advantage.

"The BOJ has confirmed that interest

rates will remain at zero, so in terms

of interest rate expectations, there's

nothing new to price in," said Kikuko

Takeda, currency strategist at Bank of

Tokyo Mitsubishi-UFJ.

As a result, the dollar is likely to

move in a Y116-Y119 range in the near

term, she said.

0716 GMT Mar 09 2006

Edited by Sledgehead
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There is a lot of talk about the vested interests on this website i.e. the ones that will benefit form a prticular outcome

the interest grups that concern me are the ones that benefit regardless of the situation, these including the analysts, commenatators, report compilers, editors, statisticians etc etc. basicaly all the picks and shovels that bring all these reports and analysis to us

these people can say what they like as they will benefit irrespective of their view, opinion and state of the market, as they get paid whetever they produce or compile or comment on, prices up prices down they don't care.

one thing is for sure that a stagnanet market with no shocks or revelations is not very newsworthy, just look at the headlines in the papers everything is 'horror' 'disaster' 7 out of 10 dentists are leaving the NHS if you believe the daily mail.

do take things with a balanced view, a stock market analyst will still be a stock market analyst if the FTSE crashes to 4000 and will still earn by analysing and be unscathed but can influence your judgement as to wether to invest or not without risking it himself....

i only listen to those who actively invest in the sector they talk about.


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I saw that on News 24 too. Discussion between correspondent and city bod from this months chosen city institution. Discussion was that cut won't happen and next move would be up, probably August. Maybe the mainstream accepted view of what is going to happen is on the turn?

Didn't see it, but that is the most realistic view that I've heard in ages. August is a long time away. Many things can happen between now and then, but the risks definitely seem to be on the upside. I wouldn't be surprised to see a rise before August.

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I saw that on News 24 too. Discussion between correspondent and city bod from this months chosen city institution. Discussion was that cut won't happen and next move would be up, probably August. Maybe the mainstream accepted view of what is going to happen is on the turn?

Which mainstream are you talking about? I bet we get more and more information about expected rate cuts for the next month.

Billy Shears

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So the rates have been held again. What does this mean for house prices? no change?

What would happen if the rates go down, will this prolong the misery of house prices?

Alternatively what happens when they go up?

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i only listen to those who actively invest in the sector they talk about.

Which assumably means you still listen to them when they go to cash because the sector in question is deemed to be on a downturn?

They're no longer 'in the sector' then, so to speak! :lol:

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