6 Mar 2015
Falling euro a trouble for Riksbank and DNB – Rabobank
FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, explains that the previous slump in Euro triggered SNB, DNB and even the Riksbank to take measures to defend their currency pegs, and the present fall might brew trouble for the central banks to undertake further defensive measures.
Key Quotes
“In our view heavy EUR selling pressure was the prime reason why the SNB was forced to walk away from its former EUR/CHF1.20 ‘floor’ on January 15. The SNB may have poorly communicated its intentions but in our view its policy was a victim both of safe haven demand for the CHF and of the success of the ECB in the currency war.”
“When the Swiss signalled that pressures on its balance sheet meant that it would no longer be such a large buyer of the EUR, the single currency fell even further.”
“As a consequence the battle that the DNB was fighting to maintain its EUR/DKK peg became more of a struggle. Between January 19 and February 5, the DNB was forced to cut interest rates four times.”
“It also announced that the government was suspending bonds sales which would have a similar depressive impact on bond yields as QE.”
“In January the DNB sold DKK106.3 bln to defend its currency peg, in February the amount rose to DKK168.7bln, though the interventions dropped off at the end of the month."
“The Riksbank has been waging its own battle against deflationary pressures and through a series of pre-emptive rate cuts has been fairly successful in keeping EUR/SEK well supported.”
“Earlier this week, however, Riksbank Governor Ingves admitted that the SEK is ‘rather weak’ at the moment and in doing so encouraged EUR/SEK to extend its recent downtrend. This morning Ingves has attempted to reinstate the Riksbank’s dovish position by warning that it could further reduce the repo rate.”
“If EUR/USD continues to trend lower, the Riksbank will not be the only central bank in the region to be considering fresh defensive measures.”
Key Quotes
“In our view heavy EUR selling pressure was the prime reason why the SNB was forced to walk away from its former EUR/CHF1.20 ‘floor’ on January 15. The SNB may have poorly communicated its intentions but in our view its policy was a victim both of safe haven demand for the CHF and of the success of the ECB in the currency war.”
“When the Swiss signalled that pressures on its balance sheet meant that it would no longer be such a large buyer of the EUR, the single currency fell even further.”
“As a consequence the battle that the DNB was fighting to maintain its EUR/DKK peg became more of a struggle. Between January 19 and February 5, the DNB was forced to cut interest rates four times.”
“It also announced that the government was suspending bonds sales which would have a similar depressive impact on bond yields as QE.”
“In January the DNB sold DKK106.3 bln to defend its currency peg, in February the amount rose to DKK168.7bln, though the interventions dropped off at the end of the month."
“The Riksbank has been waging its own battle against deflationary pressures and through a series of pre-emptive rate cuts has been fairly successful in keeping EUR/SEK well supported.”
“Earlier this week, however, Riksbank Governor Ingves admitted that the SEK is ‘rather weak’ at the moment and in doing so encouraged EUR/SEK to extend its recent downtrend. This morning Ingves has attempted to reinstate the Riksbank’s dovish position by warning that it could further reduce the repo rate.”
“If EUR/USD continues to trend lower, the Riksbank will not be the only central bank in the region to be considering fresh defensive measures.”