In the wake of the Korean test and widespread global condemnation the FX markets had looked relatively calm. However, this illusion was shattered with the arrival of the European market today. Buying of the Dollar, perceived as a safer unit because of its quality, fuelled a rally in USD/CHF to a 5-month high above 1.2680 as bulls looked for a run at 1.2700. Sellers are looked for into this level into early NorAm trading. Elsewhere, the SNB today noted in its quarterly report that the Swiss Franc was still an attractive buy for carry trades but "rapid changes in the exchange rate made this a risky strategy".
Excluding factors of transaction costs and liquidity the domestic report from the central bank notes that "carry trades are exposed to high exchange rate risks" and that the SNB has continued to emphasize that this risk remains, if not grow as the markets build deeper short CHF positions. On growth the SNB 2007 GDP rate of +1.8% looks in line with market expectations, if a little on the moderate side, however, as ever the KoF is there for speculation on the risk.
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