Pressure is On the ECB Ahead of Meeting

FOR IMMEDIATE RELEASE
(Free-Press-Release.com) September 6, 2011 -- Philipp Hildebrand’s success in bringing the Swiss franc down to its lowest level in seven weeks may turn out to be fleeting, since options prices are serving as his guideline.

The president of the Swiss National Bank depreciated the franc by 16% against the Euro from a record-high level on August 9 by cutting borrowing costs to zero and raising supply on the money market by six times its previous rate. This didn’t stop analysts from predicting that the franc would hold onto its 13% gains against 17 other currencies until the end of the year and then increasing their forecasts even more. Traders pushed the indicator of future demand for the franc to a record high in August. Hildebrand’s previous efforts weren’t enough to stop the franc’s advancement; not even a consecutive 15-month currency sell-off which contributed to $21 billion in losses last year for the Swiss National Bank, a new record. All of this couldn’t stop the franc from dominating 16 other major currencies from the beginning of the European debt crisis at the end of 2009. DT Trading experts explain that investors are looking at Switzerland as a safe haven since the country has a lower debt to GDP ratio than the Euro zone and is expected to maintain its budget surplus until 2013. “The question is whether the Swiss National Bank can do enough to stop the appreciation of the Swiss franc?” says Dirk Aufderheide, head of currency management at DWS Investment GmbH in Frankfurt, which manages about $400 billion.“We’re probably going to face more inflows when we see a deterioration of Europe’s financial crisis or more growing uncertainty with regard to global risk.”

The Swiss economy became a victim of 50% currency appreciation against the Euro since the end of 2007. Its GDP increased by only 0.4% in the second quarter, its weakest growth since Switzerland’s economy got out of the recession in the third quarter of 2009. Exports, which account for about one half of GDP, fell by 1.3% in the first quarter.

“The Swiss economy has a high probability of falling back into recession given the currency moves,” said Christian Gattiker, head of the analytical department at the bank Julius Baer & Co.

Nestle SA (NESN), the largest food company in the world, announced on August 10 that the franc’s appreciation cost the company 14 percentage points of its sales growth in the first half of the year. Baloise Holding AG, the third largest insurer in the country, announced on August 30 that its profit fell 3.4% in the first half of the year because of the strong franc.

Meanwhile, World Bank President Robert Zoellik announced at a press conference specially organized for assessing the world economic situation that risks for the world economy are increasing and the outlook for the Euro zone directly depends upon European leaders making the right decisions. “We are moving in a dangerous period,” Zoellik said in an interview with Bloomberg Television in Singapore today. Although the US is likely going to avoid a return to a recession, the Euro zone is coming up against an “especially sensitive time,” he said. Zoellik’s commentary added pressure on European officials who are not yet prepared to cope with the sovereign debt crisis that is threatening to engulf Italy, whose government obligations in Euros have been falling for a record 11 days in a row. Finland is sowing discord among politicians who are striving to get collateral for extending credit to Greece, the first of three Euro zone countries who have gotten a bail-out since the start of the debt crisis. According to unconfirmed data received by DT Trading analysts, the reason the decision to extend credit to Greece has been postponed until the weekend was because of Finland’s position which was putting pressure on its southern neighbor in order to speed up the process of privatizing government assets. Generally speaking, Greece doesn’t have enough liquid assets to put up for collateral on loans.

DT Trading Limited Analytical Department

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