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Successful Spanish Bond Auction Sends GBP EUR Exchange Rate Lower, Strong Swiss Export Data Helps The CHF

October 18, 2012 - Written by David Woodsmith

This morning’s sale of Spanish 3, 4 and 10 year government bills was a qualified success, providing the euro with further positive impetus as today’s two day eurozone summit gets underway. It was a case of ‘win-win’ for the debt-troubled Iberian state’s policymakers, with the debt sale, which many analysts had considered to be a potential banana skin, attracting a larger than expected uptake from bond market investors. The auction also saw the rate of interest which Spain is paying on her bills reduce in comparison to the nation’s previous debt sale. The development saw the single currency well bid on the day, sending the GBP EUR exchange rate back into the 1.2200s earlier.

Meanwhile, fears regarding the state of the real economy in the US were heightened by this afternoon’s US Initial Jobless Claims data, which printed at a higher than anticipated 388,000. The figure suggests that the pronounced dip in the overall rate of US unemployment which was announced earlier this month, may well prove to be a ‘flash in the pan’.

Elsewhere, there was tangible evidence earlier today that the Swiss National Bank’s self-imposed EUR CHF exchange rate floor of 1.2000 is at least partially having its desired effect. This morning’s Swiss export data showed a monthly increase of 2.6% - well ahead of analysts’ expectations. Admittedly, domestic imports in Switzerland also registered a healthy gain, which isn’t what the SNB would have wanted. The idea behind a central bank actively weakening its currency is that levels of exports of that country’s good and services will increase due to a drop in their local currency prices. An additional effect is that imports into the economy in question rise in price, making them less attractive to domestic consumers. A policy that is half working is better than a policy that doesn’t work at all.
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