2 May 2002, 15:17 Forex - Swiss franc in retreat in midday trade after SNB cuts Libor rate
LONDON (AFX) - The Swiss franc has come under pressure in midday
trade after the Swiss National Bank lowered its key three-month Libor
rate by 0.5 percentage points to 0.75-1.75 pct, dealers said.
"With this step, the National Bank is reacting to the rapid
appreciation of the Swiss franc against the major currencies, which has
led to an undesirable tightening of monetary conditions in
Switzerland," the bank said in a statement.
The SNB is becoming increasingly anxious about the appreciation of
the currency, noting in its statement that economic growth in
Switzerland is weaker than would have been expected.
"This is an extremely aggressive move by the SNB given the recent
inflation numbers," said Ian Stannard, currency strategist at BNP
Paribas.
Rob Hayward, currency strategist at ABN Amro, said the move wasn't
entirely surprising but labelled it a "decisive" move to stop the cross
going below 1.46. The dollar issue remains out of SNB's hands but this
additional cut should help euro/Swiss climb back up to the 1.47 mark,
said Hayward.
Steve Barrow, currency strategist at Bear Stearns, said as a result
of the move euro/Swiss is "the long-term buy".
Meanwhile the dollar has managed to claw back some of its recent
losses but market participants think it will remain under pressure
ahead of tomorrow's crucial US labour market report.
Though euro/dollar has come off its overnight five-month high of
0.9081 usd, dealers expect further dollar weakness to prompt a break
above 0.91 usd.
However, the market is already pretty long euro and the upside is
likely to be capped at 0.9110 usd, according to ABN Amro currency
strategist Rob Hayward, who added that the market reaction to
yesterday's Senate testimony of US Treasury Secretary Paul O'Neill's
was a bit "extreme".
Meanwhile, dollar/yen hovered above its recent lows as Japan enters
the Golden Week holiday but BNP Paribas' Stannard wouldn't be surprised
if dollar/yen tests its March 7 lows of 126.35.
"O'Neill didn't inspire confidence in the backing of dollar policy
and more specifically regarding the yen and intervention, his comments
will be interpreted as directed to the Japanese," said Stannard. "That
could put dollar/yen under pressure."
Stannard was refering to O'Neill's lukewarm comments about the
value of intervention in the currency markets.
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