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The CHF - Swiss Francs weekly update 30 Jun 2008
In this week's
update: Sterling rates steady for now
- UK mortgage approvals slump
- Swiss sentiment softens
Sterling tried and failed to push above SFr 2.0550. It eventually caved in and retreated to SFr 2.02 on Friday morning before consolidating above that level. It opened in London this morning at SFr 2.03, a cent and a half down on the week.
The week's economic data were not particularly helpful to Sterling. Its saving grace was that figures from elsewhere were almost equally as lacklustre. The highlight - if a negative figure can be referred to as such - was the CBI Distributive Trades survey. After the previous week's unbelievably strong Retail Sales performance the market was ready for a burst of harsh reality from the shopkeepers. Forecasters were going for a 16 reading so when it turned out to be only 9 there was a degree of relief.
Rather less satisfactory was mortgage activity among BBA members. The Independent was perhaps exaggerating when it said "the number of mortgages approved for house purchases slumped to an all-time low." It would be a surprise if the figure had not been lower in, say, 1914 or 1939. Yet the point was well made that, compared to a year ago, fewer than half as many people are buying. According to the BBA, "only remortgaging business is holding up, where people need or want to take advantage of deals with other lenders." Scant consolation when there are 15 sellers for every buyer.
Bank of England Governor Mervyn King was slightly less gloomy than usual during his Q&A session at the parliamentary Treasury Committee. He repeated his story about inflation rising above 4 per cent by the end of the year but was evasive about what might happen to interest rates. The media and the market were left guessing and failed to come up with any firm conclusion.
The Swiss economy did not have a whole lot to say for itself during the week. There only two figures of any consequence. The UBS Consumption Indicator looks at an arcane combination of data, including new car sales and the number of domestic hotel overnight stays by Swiss nationals, in an attempt to plot the direction of private consumption. The indicator fell to 1.91 in May but still remains well above the long term average of 1.50. The other figure was for the almost equally arcane KOF Economic Barometer. It too fell in June but again the decline was modest. At 1.01 it points to a gradual cooling of the business climate.
Following the previous week's decision by the Swiss National Bank to leave interest rates steady at 2.75 per cent the pundits have been hard at work interpreting the outcome. Figures later this week will show CPI inflation moving higher but, they believe, not to the extent that would force the SNB to tighten monetary policy. Like the Bank of England, the SNB apparently expects inflation to settle down without the need to take rates higher. The market is not yet convinced of this scenario, especially as the European Central Bank is almost certain to lift rates this week. Even so, the Swiss Franc will probably have to rely on rates at current level for some time.
We are still in a situation where the only reliably safe strategy is to rely on the classic hedge, covering half of any exposure to Sterling/Swiss. Buyers of the Swiss Franc should hedge, buying half their requirement forward.
For more information and expert guidance on the currency markets, call Moneycorp today on +44 (0)20 7589 3000. Alternatively go to www.moneycorp.com where you can open a free, no obligation Trading Facility.
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