LONDON (Reuters) - The Swiss currency shock has raised an awkward
question many investors have been fearful of asking - what if central
banks become as unpredictable and fallible as they are powerful?
The Swiss National Bank's sudden decision to abandon its three-year-old cap on the franc - the "cornerstone" of its monetary policy just three days before - led to the biggest one-day move in major exchange rates in the post-1973 floating rates era. To some it was a warning sign of other U-turns, mishaps and possible failures by central banks still ahead, outcomes not fully appreciated by long-becalmed markets.
For decades the power of currency printing presses has held markets in thrall. "Don't fight the Fed" and all its international variations has been a devout belief among financial traders.
Even after the failure of Alan Greenspan's Federal Reserve to spot and headoff one of the biggest credit booms and busts in history, the ability of the Fed, Bank of England, Bank of Japan, European Central Bank and others to flood their money supply to ease the fallout helped anaesthetise fractious markets.
The subsequent waves of cheap credit, currency fixes and "quantitative easing" drove down borrowing rates and erased volatility.
Read more Click Here / www.trade4x.net
The Swiss National Bank's sudden decision to abandon its three-year-old cap on the franc - the "cornerstone" of its monetary policy just three days before - led to the biggest one-day move in major exchange rates in the post-1973 floating rates era. To some it was a warning sign of other U-turns, mishaps and possible failures by central banks still ahead, outcomes not fully appreciated by long-becalmed markets.
For decades the power of currency printing presses has held markets in thrall. "Don't fight the Fed" and all its international variations has been a devout belief among financial traders.
Even after the failure of Alan Greenspan's Federal Reserve to spot and headoff one of the biggest credit booms and busts in history, the ability of the Fed, Bank of England, Bank of Japan, European Central Bank and others to flood their money supply to ease the fallout helped anaesthetise fractious markets.
The subsequent waves of cheap credit, currency fixes and "quantitative easing" drove down borrowing rates and erased volatility.
Read more Click Here / www.trade4x.net
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