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Currencies  |  February 04, 2013 12:04:33

Switzerland amid currency wars

How does Switzerland? Its risk increases, the tipping point is around the corner. Over the last half year, I wrote about it several times, as well as the fact that Switzerland has its own head.

Peg the franc to the euro exchange rate   operation since autumn 2011, and that since last autumn lifted its volatility. Meanwhile franc against the euro weakened slightly. The moment again prokunou problems in the eurozone do not believe that the Swiss Central Bank (SNB) will not allow the franc to strengthen more than 1.2 CHF / EUR.

Swiss central bank prints money like crazy.Strengthening of the franc against the defense stood up for the last 16 months SNB large amount of money when selling francs (which had first printed) and purchased virtually all major world currencies - most of the euro, as well as dollars, pounds and yen. Incidentally, it is interesting that the United States still nenařkly from currency manipulation, China surpasses the scope of operations to weaken their own currencies.

The result is that the Swiss central bank changed into one large hedge fund. Given the size of its balance sheet must be aware of the futility of SNB franc defense, but he knows that just has to do it.After all, the Fed's balance sheet size is approximately equal to one fifth of the GDP of the United States, velokost ECB balance sheet is approximately 30% of eurozone GDP. Size of the Swiss central bank's balance sheet was in November last year to less than 90% of Swiss GDP, a relatively triple the ECB.

Purchases SNB purchases by the Fed or the ECB different in one major way - the only one of them buys mainly foreign currency securities and the display of the exchange rate risk. The Swiss franc is thus at the center of the ongoing financial war.

Another round of currency wars is there are already kicking every country for itself. Each country has business reasons for a weaker currency rather than vice versa.

The first is likely to compete with the franc yen. Japan's newly elected prime minister announced that in an effort to strengthen export plans to weaken the value of the Japanese yen. The protection industry, Japan has a lot of experience and is now apparently being used. Japanese yen in the last three months strengthened from Y 84 per franc to 98, an increase of 17%. Here, then, loses and Swiss franc the central bank threatens the first wave of losses.

In the second round, then waits for duel with Franc British Pound, then in the third battle with the euro. In both cases, the exchange rate changes over the past few months, moving in a few percent.How will the two duel? Usually increases spreads and equity prices will rise. Now I do not believe it, especially growth stocks.

Many hedge funds have bet that the franc above fights and loses tone, perhaps to parity with the euro, the dollar when problems calmly and above.

What about the Swiss central bank can wreak? Probably not much. And because we previously demonstrated   that the euro zone can not give , I would be surprised variant, which would join the franc countries, aiming to establish gold backed currency.

Watch the steps carefully Switzerland.

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