Soros wannabes are focused on Switzerland, and the ceiling its central bank imposed in September of 1.2 Swiss francs to the euro. Apart from one slip-up, the ceiling has held since – no thanks to the markets. Options prices suggest bets on the franc breaking through are the highest since the ceiling was put in place. This is a stunning reversal from March, when some were betting on the ceiling coming down to weaken the currency even further.
Soros wannabes focus on Swiss franc
By James Mackintosh
It has survived every disaster from the Tequila crisis in 1994 through the 1997 Asian crisis to Lehman’s collapse. It fought off attacks from George Soros and other currency speculators. The Hong Kong dollar’s peg to the US dollar has been around for longer than most traders have been in the market. Now the man who nursed the currency board from its birth in 1983, Joseph Yam, former chief executive of the Hong Kong Monetary Authority, says it should be reconsidered.
Hong Kong offers a cheap bet – options on its dollar rising are as cheap as those on it falling, because few think the link will be broken.
That reflects reality: nothing will happen soon. Hong Kong has been through booms and busts from inappropriate US interest rates before, and can survive another.
Soros wannabes are instead focused on Switzerland, and the ceiling its central bank imposed in September of 1.2 Swiss francs to the euro. Apart from one slip-up, the ceiling has held since – no thanks to the markets. Options prices suggest bets on the franc breaking through are the highest since the ceiling was put in place. This is a stunning reversal from March, when some were betting on the ceiling coming down to weaken the currency even further.
There is little reason to think the Swiss National Bank will give in to speculators. The one thing that might make it gag on the unlimited printing of francs needed to prevent the franc rising would be domestic inflation – but prices are still falling. Worse, the Swiss are already discussing capital controls if the euro implodes.
A better end-of-the-euro bet might be against Denmark’s euro peg. Danish bonds have been even more of a haven than German Bunds, with 10-year yields dipping below 1 per cent at the start of the month. In a disaster, the krone would probably be repegged against a new Deutschmark, but investors would avoid the legal uncertainty and disruption of a new German currency.
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