Weak Dollar Is Another Headache for SNB With Limited Repertoire

A weak dollar is the latest headache for the Swiss National Bank, which relies on foreign exchange interventions as a form of quantitative easing due to the small size of its local bond market.

While the euro has long been its primary focus, the central bank appears to have continued limited interventions even as the franc depreciated versus the common currency, suggesting it’s been casting its net more widely.

A measure of cash commercial banks have with the SNB, considered an early gauge of interventions, rose by 1.4 billion francs ($1.5 billion) last week, data on Monday showed. The SNB’s foreign exchange reserves inched up to 848 billion francs in August, close to the June record.

Weak Dollar Is Another Headache for SNB With Limited Repertoire

“They have few alternatives,” said Credit Suisse Group AG economist Maxime Botteron. “It’s less weakening the franc against a single currency and more just to pump more liquidity into the system to show the SNB is committed to a very expansive monetary policy.”

A spokeswoman for the SNB declined to comment on the figures published on Monday.

The U.S. Federal Reserve’s shift in strategy to periodically tolerate faster inflation has extended the dollar’s recent decline versus other major currencies and is impacting policy making in Europe.

Economists expect the European Central Bank to step up its crisis response later this year with an increase emergency bond-buying program. The SNB hasn’t been able to go that route, and instead is relying on negative interest rates plus currency interventions to control the level of the haven franc and fight off deflationary forces.

SNB President Thomas Jordan reaffirmed that two-pillar policy last week.

Against the dollar, “the franc is somewhere between fair value and overvalued,” said UBS Group AG economist Alessandro Bee. “They’re probably not super relaxed but they don’t see it as as much of a problem as with the euro.”

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