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Swiss franc plummets on peg speculation

Sterling recouped losses, pulling away from near three week lows against the dollar yesterday, helped by re-bounding stocks, although a murky outlook for the UK economy and speculation of more monetary easing checked sharp gains. Sterling also made solid gains against the Swiss franc, which fell sharply on speculation the Swiss National Bank could possibly peg the franc to the euro to rein in a soaring currency, just a day after it announced fresh monetary easing measures to try and reign in the surging franc. Sterling rocketed from around the 1.1800 level against the franc to over 1.2400 by mid afternoon. The BoE on Wednesday cut its expectation for annual GDP growth to around 2.0 percent for the fourth quarter of 2011. In May, it had forecast 2.5 percent growth by the end of the year. The Bank also said inflation would fall rapidly in 2012. Markets expect the BoE to keep interest rates at record lows into 2013, with a growing feeling that another round of quantitative easing could be on the cards to stimulate growth, a tool which BoE governor Mervyn King has said may still be needed.
No major data due today.


The euro extended its second straight weekly drop against the dollar before report forecast to show an expan-sion in industrial production in the region stalled and Greece’s economy shrank. The single currency was set for the biggest weekly drop in three month against the yen as traders bet the European Central Bank will cut its key interest rate as austerity measures crimp growth. As mentioned above, the big mover in the markets yesterday was the Swiss franc as it plummeted 5.3 percent against the euro after speculation that it may be pegged against the euro. We saw it move from around 1.04 handle to hit a high of just over 1.09. Market attention will be focused on any follow-up comments over the coming weeks and the Swiss franc could be in for some volatile movements.
10.00: Industrial Production m/m.


The U.S. Trade gap widened in June to its largest since October 2008, as both U.S. Imports and exports de-clined in a sign of slowing global demand, a government report showed yesterday. The June trade deficit leapt to $53.1 billion, surprising analysts who expected it to narrow to $48.3 billion from an upwardly revised estimate of $50.8 billion in May. However, unemployment claims came in slightly better than expected down from 402k last month to 395k. All eyes now shift to this afternoon’s figures to end a volatile week.
Data 13.30: Core Retail Sales m/m; Retail Sales m/m; 14.55: Prelim UoM Consumer Sentiment.


• Four key Eurozone nations (France, Italy, Belgium and Spain) are to ban short selling of financial stocks for at least 15 days in a bid to halt the turmoil engulfing markets.


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GBP/USD                        1.6190

GBP/EUR                        1.1405

EUR/USD                        1.4190

GBP/JPY                         124.00

GBP/AUD                        1.5730

GBP/NZD                         1.9690

GBP/ZAR                         11.72

GBP/CHF                         1.2370

GBP/CAD                        1.6000

GBP/SGD                        1.9640

GBP/THB                         48.40

GBP/HKD                        12.6170

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These rates are for indication purposes only.


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John Paul Georgiou

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