Swiss Franc’s Haven Run Seen Nearing SNB Intervention Threshold
(Bloomberg) — After soaring as a global safe haven bet, the Swiss franc is wrapping up a volatile week against the euro with speculation the Swiss National Bank has intervened to curb the currency’s strength.
The franc is heading for its ninth weekly gain in 10, the best streak in two years. It has benefited from haven demand as the dollar, the yen and the euro have been losing their appeal over US trade policies, political uncertainty from Europe to Asia and global fiscal woes.
Earlier this week, it surged to near a decade high against the euro, approaching the key 0.92 level that signals to traders the central bank could be ready to step into the market and curb the franc’s strength as it has done in the past. It now trades 0.3% below this week’s peak.
“It seems reasonable that the SNB could have been intervening given the current strength,” said Jane Foley, head of FX strategy at Rabobank, adding currency operations could be the central bank’s favored tool to manage the franc right now.
Among peers in major developed nations, the franc is the best performer against the dollar over the past month even though Switzerland’s policy rate is at zero. It’s emerged as the standout risk hedge in currencies and its inverse correlation with global risk sentiment is near its strongest since May.
More so than ever, risk-off investors seeking shelter want alternatives to the dollar and yen, according to Nathan Thooft, a senior portfolio manager at Manulife Investment Management.
“You take two of those major players off the table, you’re left with the Swiss franc,” said Thooft. “You’re left with looking at some of the other currencies that have stable economies with well-run governments that have liquid currency markets.”
While the central bank’s first-ever policy meeting summary released on Thursday underwhelmed some strategists for its lack of details, Societe Generale analysts said intervention risk looks “maximal.” UBS Group AG analysts went as far to say that the SNB is probably already stepping in to weaken the franc.
The SNB does not comment on whether it has intervened in the currency and data pointing to any evidence of this in the current quarter will be available with a delay.
The Swiss franc has previously come under the scrutiny of US President Donald Trump. In September, the two countries vowed not to manipulate currencies, with the SNB pledging to keep its monetary policy focused on price stability.
“This provides a green light to the SNB to address the increasing disinflationary pressures via both rates and FX policy,” said Aroop Chatterjee, a strategist at Wells Fargo, referring to the US-Switzerland joint statement. Chatterjee said that the SNB could first intervene and then introduce negative rates this year.
The options market sees unilateral SNB action sucking some speed out of its ascent rather than reversing its direction. One-month risk reversals are the most franc-bullish since May, implying little perceived risk of a return to negative rates policy by the SNB.
That aligns with the central bank’s meeting summary which said deflation isn’t a threat and inflation is likely to pick up moderately in coming months.
This week’s summary offered scant details on the currency. Officials observed the franc had strengthened against the dollar, but was “relatively stable” versus the euro. They said that geopolitical shocks could drive inflows into the franc, but that the “relatively high” differential between Swiss rates and those of major peers was countering that effect.
Nevertheless, for Valentin Marinov, head of G-10 FX research and strategy at Credit Agricole, the strengthening franc “is a continuing worry for the SNB.” BBVA analysts expect the SNB to continue intervening at around the 0.90–0.92 level.
–With assistance from Naomi Tajitsu.
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