You sell them for other appreciating currencies.
It’s no secret that the SNB has been in the markets buying euros to maintain its 1.20 EUR/CHF currency peg. The euro, however, is a loosing currency to hold as it looses value in the face of its sovereign debt and political crises. To hedge against this loss of euro value and diversify its foreign reserves as it accumulates euros, a pattern, first noted by Credit Writedowns and included in yesterday’s digest, has emerged that the SNB sells its intervention euros for other, more valued currencies. And it looks like one currency of choice may be sterling.
Sterling strength has been mysterious to many traders because UK fundamentals are so poor (poor economy and tons of QE). Perhaps the SNB has been big buyer of sterling as it looks to quietly get rid of a devaluing euro that it is forced to buy. Now as $EURCHF is hovering around the 1.20 peg, I have to wonder if we’ll see a drop in $EURGBP when the SNB enters the forex market again. Some argue the SNB is already in the market.
OK, I step off my conspiracy theorist soapbox.
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