The franc was boosted by two factors today. First were renewed signs that the SNB is letting the 3 month Libor rate creep up as a protest over franc weakness. Some suspect the firmer market is a signal to the market to prepare for an intermeeting hike or a 50 basis point hike at the September meeting. Also helping was a fresh bout of risk aversion as hedge fund woes in the subprime mortgage space continued to grab headlines today.
Bloomberg ran a piece saying Merrill sees Bear Stearns being forced to sure up its second, less-leverages subprime hedge fund. A UK fund also announced troubles. EUR/CHF fell to 1.6520 intraday, the 61.8% retracement of the 1.6422/1.6673 rally. A later probe to the downside reached 1.6530. Rallies are limited to 1.6560 n-T.
Local dealers look to the Wednesday KoF data to add credence to the view that the SNB may consider hiking rates by 50bps in Q3. It is expected to rise to 2.0, from the prior 1.96 reading, with risk skewed to the topside. Any 2.0+ headline would be consistent with continued above-trend growth and underline the recent stance of the SNB and SECO that GDP in 2007 could exceed forecasts.
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