Amundi Ditches Swiss Franc as ECB Evokes Painful 2015 Memories

(Bloomberg) -- Amundi Asset Management is calling the end of the Swiss franc rally, backing the nation’s policy makers in their battle to contain the surging currency.

One of Europe’s biggest asset managers says the Swiss franc has appreciated to a psychologically important threshold of 1.10 per euro likely to prompt the Swiss National Bank to temper its rise.

“The franc is already a very expensive currency given how low its interest rate is, and I don’t think the SNB is happy with the franc at these levels," Andreas Koenig, head of global foreign exchange at Amundi, said in an interview. “The SNB still has power to do more on the currency if it wants to.”

Amundi has just closed and reversed its tactical long position on the franc. Traders who remember the SNB’s painful move preempting the onset of European Central Bank bond purchases in January 2015 are also keeping a wary eye on interventionist Swiss bankers before the ECB fleshes out possible plans to restart asset purchases. Fresh QE would have the effect of stoking the franc further.

Safe-haven demand has pushed the franc to its strongest level versus the euro in two years, raising the specter of disinflation. SNB President Thomas Jordan has said there’s additional room to cut if necessary.

Koenig reckons that the SNB could start being more active on jawboning to slow the franc appreciation, or cut in tandem with the ECB if that doesn’t work. A move toward parity could even prompt surprise action by Jordan before the next scheduled meeting in September.

"We don’t want to be against the resolve of the central bank," he said.
Of course, political tensions are weighing on monetary issues, too. The nation’s continued bilateral trade surplus might provide U.S. President Donald Trump with justification to respond to any SNB interventions with counter-interventions, according to Commerzbank AG strategists, bringing “the world another step closer to a full-blown currency war.”

And the Swiss National Bank’s official interest rate, at minus 0.75%, is already the lowest among developed nations.

“The SNB is stuck between a rock and a hard place,” according to Esther Reichelt at Commerzbank.

Swiss franc bulls, including JPMorgan Chase & Co., argue that while the SNB may not have exhausted its capacity to intervene nor to cut interest rates further, the central bank can’t match the ECB or Federal Reserve with easier policy. JPMorgan recently revised up its franc projection, forecasting that the currency will appreciate to 1.08 per euro by the end of the year and 1.07 by the middle of 2020, from 1.09 and 1.08 previously.

Three-month risk reversals in EUR/CHF are 0.9625 in favor of the Swiss franc calls. That’s well below 1.5100 extremes seen in September last year, suggesting gains are capped.

What may ultimately slow the pace of Swiss franc appreciation is the simple fact of its valuation. Thomas Clarke is one investor who prefers the yen to hedge a global growth slowdown.

"The franc’s safe haven properties are a good thing, but there’s not enough to make us want to buy it,” said the London-based money manager for William Blair International. “It’s expensive.”

--With assistance from Richard Jones.

To contact the reporter on this story: Anchalee Worrachate in London at aworrachate@bloomberg.net

To contact the editors responsible for this story: Samuel Potter at spotter33@bloomberg.net, Cecile Gutscher, Sid Verma

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