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15 Jan 2015
Is SNB changing track from EUR/CHF to USD/CHF? – SG
FXStreet (Barcelona) - Kit Juckes of Societe Generale, believes that the SNB is not giving up but rather just changing the way it intervenes, expecting further intervention to be in USD/CHF than EUR/CHF.
Key Quotes
“Over the past two years, it was becoming clear that the natural market equilibrium for EUR/CHF was lower despite the passing of the Euro area's sovereign crisis. The Swiss franc was bid by safe haven flows from a combination of EM weakness and geopolitical concerns, particularly following the Ukraine crisis. “
“Most recently, higher volatility in global risk assets has contributed to upside pressure on the franc. The attempt to hold the EUR/CHF 1.20 floor has resulted in a ballooning foreign reserves stockpile at the SNB. The reserves have climbed from CHF200bn in mid-2011 to almost CHF 500bn (of which 45% are in Euros). These are now equivalent to 70% of Swiss GDP and have not been without controversy in Switzerland, as reflected in the referendum on the SNB's gold holdings on 30 November 2014.”
“The SNB is not ‘giving up' but rather, changing tack. After allowing the markets to clear, further intervention is likely - but possibly, in USD/CHF rather than EUR/CHF, with added emphasis on the CHF trade weighted index. After all, the marginal buyer of Swiss luxury goods nowadays is more likely to be in Beijing or Shanghai than Frankfurt or Paris.”
“After that, the SNB will see what the effect of the new interest rate stance is, after all, such deeply negative rates will have an impact on the appetite of anyone to keep money on deposit in Swiss francs.”
“The SNB must hope that the EUR/CHF, after settling at a much lower level initially, then drifts back upwards towards 1.20. A more realistic hope might be that the USD/CHF rate gets back above parity later this year.”
Key Quotes
“Over the past two years, it was becoming clear that the natural market equilibrium for EUR/CHF was lower despite the passing of the Euro area's sovereign crisis. The Swiss franc was bid by safe haven flows from a combination of EM weakness and geopolitical concerns, particularly following the Ukraine crisis. “
“Most recently, higher volatility in global risk assets has contributed to upside pressure on the franc. The attempt to hold the EUR/CHF 1.20 floor has resulted in a ballooning foreign reserves stockpile at the SNB. The reserves have climbed from CHF200bn in mid-2011 to almost CHF 500bn (of which 45% are in Euros). These are now equivalent to 70% of Swiss GDP and have not been without controversy in Switzerland, as reflected in the referendum on the SNB's gold holdings on 30 November 2014.”
“The SNB is not ‘giving up' but rather, changing tack. After allowing the markets to clear, further intervention is likely - but possibly, in USD/CHF rather than EUR/CHF, with added emphasis on the CHF trade weighted index. After all, the marginal buyer of Swiss luxury goods nowadays is more likely to be in Beijing or Shanghai than Frankfurt or Paris.”
“After that, the SNB will see what the effect of the new interest rate stance is, after all, such deeply negative rates will have an impact on the appetite of anyone to keep money on deposit in Swiss francs.”
“The SNB must hope that the EUR/CHF, after settling at a much lower level initially, then drifts back upwards towards 1.20. A more realistic hope might be that the USD/CHF rate gets back above parity later this year.”