(Bloomberg) --
At the Swiss National Bank, a familiar foe has come back into view.
Investor concerns about tensions between the U.S. and Iran, along with the threats from protectionism and the prospect of interest-rate cuts by both the European Central Bank and the Federal Reserve, have put the franc on an appreciation course. It’s rallied sharply against the greenback and hit a two-year high versus the euro on Thursday, breaking through the 1.11 level.
The situation harks back to 2014 and 2015, when the prospect of ECB quantitative easing piled pressure on the franc, ultimately forcing the SNB to abandon its currency cap.
The latest appreciation comes a week after SNB President Thomas Jordan signaled it was business as usual, keeping monetary policy unchanged, maintaining an intervention threat, but refusing the opportunity to toughen language on the currency.
The SNB hasn’t waged large-scale interventions for more than a year. But the franc has rallied since the June 13 policy press conference, with traders sensing an opportunity to take on the central bank. A break through the psychologically important 1.10-per-euro mark could raise alarm bells.
“The dovish shift in Fed policy is increasing upward pressure on low yielding currencies such as the Swiss franc and yen,” said MUFG analyst Lee Hardman. “Their domestic central banks are perceived as having less room for maneuver to ease monetary policy further.”
The franc was little changed at 1.1093 per euro on Friday.
The SNB already has the lowest policy rate of any major central bank, at minus 0.75%, and its balance sheet has ballooned due to the interventions waged over the years to limit the franc’s strength. Yet Jordan has stressed both policy tools can be used to react to shocks.
The franc’s rise “could trigger interventions, but not at large volumes like we saw in 2017,” said Credit Suisse economist Maxime Botteron. “A few ad-hoc interventions, I could imagine that.”
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