SNB Stayed Out of FX Market as Franc Slumped in First Quarter

(Bloomberg) — The Swiss National Bank continued to refrain from steering the franc at the beginning of the year, largely staying out of currency markets for a fifth consecutive quarter while the currency lost value against the euro.

The SNB bought foreign exchange worth just 49 million francs ($61 million) from January to March, according to data on Monday. That’s in line with previous quarters, which saw Switzerland’s central bank purchase comparably small amounts through all of 2024.

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This suggests that officials didn’t see a reason to intervene as the SNB’s surprise jumbo interest-rate cut in December convinced investors to pull money out of the franc, in line with public statements that the policy rate is the institution’s main tool. 

While the franc lost 1.7% against the euro over the period, it gained 2.8% against the dollar. This is likely due to tariff threats of President Donald Trump, which intensified during that time. When he later announced sweeping ‘reciprocal’ levies on April 2, the franc touched an all-time high against the US currency.

By selling some of its own reserves in foreign denominations, the central bank can strengthen the exchange rate. In 2022 and 2023, it boosted the franc in this way to dampen domestic inflation by making imported goods cheaper.

For several years before that, it had used the mechanism in the opposite direction to keep a lid on the currency. This has seen the SNB’s balance sheet grow to a size some observers deem dangerous as it can yield large losses.

After the SNB’s recent reduction of borrowing costs to zero, it faces the choice of stepping up currency purchases again or introduce negative rates if upward pressures on the franc persist. Since the end of the first quarter, it has gained another 1.8% against the euro.

While any interventions so far bore the risk for the central bank of being branded by the US Treasury — like it was the case during Trump’s first term — Switzerland’s Finance Minister Karin Keller-Sutter said last week that the US have now acknowledged that the country is indeed not manipulating its currency.

Officials refuse to comment on whether the franc is over- or undervalued. The institution maintains that currency interventions can happen in both directions if they are necessary to maintain mid-term price stability.

The SNB publishes a tally of its transactions on a quarterly basis but with a three-month delay. Data for the period from April to June are due on September 30.

–With assistance from Kristian Siedenburg and Joel Rinneby.

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