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Could someone explain the market reaction here? When rates are lowered, it puts both competitve pressure and supply pressure on the currency. This can be seen
by throwaway90446 12y ago
Could someone explain the market reaction here?
When rates are lowered, it puts both competitve pressure and supply pressure on the currency. This can be seen in all historical interest rate cuts. You cut rates to weaken, and raise rates to strengthen.
And yet, this CUT in rates is leading to a BID for CHF.
As they say in Geneva, WTF?
- fidotron 12y agoMy guess is it's to do with the relative state of the Euro. This move by the Swiss bank is effectively a vote of no confidence in the ECB being able to resolve the weakness there, so even though going into CHF is bad, it's judged to be less bad than sticking in EUR.
- jsnell 12y agoThe interest rate has not been the main method of controlling the exchange rate in this case. There was an artificial CHFEUR peg maintained by selling Francs and buying Euro-denominated assets.
- a_c_s 12y agoThere are two things happening with opposite effects: releasing the peg and cutting rates. Since the CHF is strengthening, we know that releasing the peg is having a stronger effect than cutting rates.