Update of trends in FX
Some weeks ago we mentioned the current pressure on some safe havens in keeping their currency peg. In the case of the European periphery, the game is focused on Switzerland and Denmark, having all the trouble in the world to stop appreciating following the declining faith in the single currency (or at least in some of its constituents). And when we have a look at the current situation in terms of accumulation of central bank foreign exchange reserves, the numbers are as follows
1) Le Franc Coucou :
start position end of 2008 : +/- CHF 50 bio
position end of 2011 : CHF 254 bio
position April 2012 : CHF 237 bio
position June 2012 : CHF 365 bio
So we have seen quite an acceleration lately with more than half of the amount being EUR intervention. In june, the intervention alone amounted CHF 60 bio !! The Swiss economy has a size of approx. CHF 550 bio, making that the fx reserves now amount 2/3 or 66% of total GDP. In terms of quantitative easing - because that's what it basically is - this is a performance well beyond the ECB or FED. In fact, the latter might even be seen as amateurs in view of the Swiss effort.
2) Den Danske Krone :
start position end of 2008 : +/- DKK 175 bio
position end of 2011 : DKK 480 bio
position June 2012 : DKK 512 bio
In absolute numbers, this is somewhat less impressive but the trend is clearly visible in the charts : a persistent slow upward move. In relative terms, the reserves now amount about 30% of GDP, also in terms of quantitative easing "eine Listung die sich sehen lassen kann"
But today came another news story. May be it's a little bit early to call it breaking news but in case this should be a canary in the coal mine, it could well become breaking news when this one goes global. Today, Bloomberg came up with the following "petite histoire"
In April, the People's Bank of China doubled the daily trading band, allowing the currency to trade 1% on either side of the official reference rate. The aim was for policy makers to reduce intervention. However, China's yuan is approaching the lower limit of the official trading band for the first time ever as slowing growth is is driving investors away. So it's currency is now trading at the lowest discount ever versus its official target. China's forex reserves declined a record $65 bio in Q2 (from 3305 to 3240). Some traders see the rise in current yuan volatility as a significant event.