Daily Archives: September 7, 2011

Claire Jones

Now that the Swiss National Bank has said it will cap the franc’s appreciation against the euro, investors are on the lookout for a new safe haven currency.

Attention has turned to the Norwegian krone, with the currency hitting an eight-and-a-half year high of NKr7.4825 against the euro on Wednesday.

Though Øystein Olsen, the governor of Norges Bank, was clear that the central bank would not for now intervene, he did acknowledge that an appreciation could weaken domestic growth.

With interest rates at 2.25 per cent, the central bank has room to loosen policy if the krone’s appreciation proves too heady. But – some argue – it may not have to bother.  Read more

Claire Jones

It seems the chancellor doesn’t listen to the governor of the Bank of England.

George Osborne said last night that Project Merlin, the government’s flagship agreement to appease public anger over the banking crisis, was “already delivering more lending to SMEs”.

Not according to Sir Mervyn. Read more

Ralph Atkins

The eurozone debt crisis will overshadow the European Central Bank’s monetary policy decision making on Thursday. It is fighting on several fronts. I posted earlier on the wording on inflation risks and interest rates. Here is what Jean-Claude Trichet, president, might say on other topics. As ever, there is always room for surprises… Read more

Ralph Atkins

What to watch out for after Thursday’s European Central Bank governing council meeting? Jean-Claude Trichet, president, hinted at a re-think of its interest rate strategy when he told the European Parliament last week that medium term inflation risks were “under study”. That encouraged speculation that he would drop references to “upside risks” – and allow the ECB to keep its main policy rate on hold, or even consider cuts.

But the ECB may not drop the reference to “upside risks” completely. Past experience suggests the ECB keeps a hawkish bias until the very last moment. Consider the language it used in late 2008. Read more

Ralph Atkins

The European Central Bank distanced itself on Tuesday from the Swiss National Bank’s plans to combat the overvalued franc by linking it to the euro. With the SNB likely to acquire substantial piles of euro assets as a result of its intervention, one fear is that it will worsen tensions in eurozone debt markets by buying only AAA bonds. Italy’s spreads versus Germany would rise further.

But maybe it would be in the SNB’s interest to help the ECB? By buying lower quality bonds, the Swiss central bank could display a level of recklessness  that might convince financial markets of its determination to do whatever is necessary to weaken the franc. Moreover, given the franc is now linked to the euro, the SNB has a greater interest in a stable eurozone. “What would be great now would be if the SNB bought €50bn in Italian bonds – it would be good for everyone,” quipped one trader.

In the Financial Times today, I have argued there is a powerful case for relaunching quantitative easing by  the Monetary Policy Committee tomorrow.

“Over the past week, business surveys from manufacturing, services and construction have been dire. Although a healthy scepticism should always be applied both to one month of data and to any business survey, the falls in the purchasing managers’ indices for August – along with the turmoil in markets – are sufficient to warrant an immediate loosening of monetary policy.”

I have noticed this morning that other people in the City and outside are wavering. Read more