Significant SNB CHF Intervention May Be Behind Us – For Now

One of the most enigmatic and unpredictable central banks in the world, the Swiss National Bank (SNB), intervenes actively in the currency market into the CHF detriment. At one point, it was responsible for changing the online trading industry by dropping the fixed exchange rate on the EURCHF without letting anyone know in advance. Which sent a few trading brokers out of business.

Increased Spot Intervention from the SNB in Recent Months

The SNB has long fought the appreciation of the CHF . The country’s neutrality makes its currency, the CHF (Swiss Franc), an attractive investment in times of crisis as investors from all over the world view it as a safe-have.

As such, when negative news hits the headlines (e.gNorth Korea launching a missile, coronavirus pandemic, etc.), the safe-haven currencies are in great demand – CHFbeing one of them, together with JPY and, ultimately, the USD, which also acts as a world’s reserve currency.

The SNB made no secret throughout its history that it intervenes in the spot market on a constant basis. Despite having the lowest interest rate in the world (-0.75%) on CHF deposits (effectively, investors pay for the privilege to have CHF deposits), the flows keep pouring into the domestic currency, affecting Switzerland’s international competitiveness via its exports.

Another interesting aspect of the SNB is that it is privately held. As such its shares are publicly listed. It comes as a contradiction with how other central banks in the world are set up, but it should come as no surprise considering that Switzerland always opted for its own way in international politics as well as in domestic affairs.

Coming back to the SNB intervention, the bank buys or sells in the spot market to keep the CHF from appreciating. It is not only about one exchange rate, but all of them. Judging by its mandate, the SNB does material rebalancing to keep the FX portfolio around 35% in USD. In the current context, that will ultimately have an impact on the EURUSD pair, albeit with a bit of lag.

The EURCHF exchange rate is the weak spot for the SNB as the vast majority of its trade is conducted with the single European market. The  EURCHF exchange rate popped recently on the back of positive developments on the common fiscal space in the Euro area, and that means the SNB will ease the CHF intervention and focus on the rebalancing of its portfolio. If the policy momentum remains intact (EU goes along and issues common debt), the EURUSD might benefit from SNB selling the USD and EUR optimism.

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