Greek Contagion – Swiss Franc appreciating despite "currency manipulation" by Swiss Central Bank

The Greek Contagion has led to indirect negative effects in unlikely places all over the world with the Swiss Central Bank being one of the casualties.The Chinese government has been under fire from other countries for manipulating its currency against the dollar to keep it undervalued but the Swiss have received little attention for doing the same thing. The Swiss National Bank (SNB) has been trying to keep the Swiss France undervalued by aggressively selling Francs in the Market.However the sharp decline in the Euro, has made its job extremely difficult.It is taking larges losses on its foreign currency holdings as it keeps buying Euros which keeps depreciating.Fighting against the Markets may prove futile as the SNB added $25 Billion to its foreign currency reserves in 1 month which is the highest in 13 years.

Even countries with a good fiscal and monetary policies are being pressured by the Greek crisis as global capital flows search for safe places in the developed world.The SNB faces a strange dilemma like many of the countries in Asia.If they raise interest rates to curb  inflation they will stoke even higher capital inflows which could lead to even higher inflation.

Hildebrand Put on Losing Side of SNB Franc Fight – Bloomberg

Swiss central bank president Philipp Hildebrand is finding himself in a tug of war with currency markets and he may be on the losing side.Hildebrand is already stepping up the fight as the franc strengthened to a record 1.4003 per euro on May 17, 14 months since the SNB began its intervention campaign to insulate Swiss exports and deflect deflation threats. The central bank added 28.5 billion francs ($24.6 billion) to its currency reserves in April, the biggest increase in at least 13 years, as Greece’s turmoil undermined the euro.Erik Nielsen, chief European economist at Goldman Sachs Group Inc. in London, said the April increase in the SNB’s foreign-currency reserves was “stunning.” The purchases also mean policy makers “have exposed themselves to financial risks,” he wrote in an e-mailed note on May 23.The SNB has already taken a hit. Its first-quarter profit fell 69 percent, due largely to a 2.9 billion-franc loss on its euro holdings.

The franc has strengthened 5 percent against the currency of the 16-nation region in the last six months.