Franc Slide Doesn’t Mean SNB Is Done Intervening Just Yet

(Bloomberg) -- The franc’s weakness against the euro might provide some relief to the Swiss National Bank -- just don’t count on an immediate end to its interventions.

The Swiss currency fell to its weakest in a month earlier Tuesday on improved market sentiment and moves by the SNB to rein in the haven asset. Policy makers appear to have staged their biggest intervention in the foreign exchange markets since 2015 last week, and Morgan Stanley and Commerzbank AG say more may be looming.

“We certainly do not think the SNB are likely to become complacent,” said Ned Rumpeltin, the European head of currency strategy at Toronto-Dominion Bank. “The rapid acceleration of sight deposits in recent weeks is strong evidence that the SNB has tried to draw a line in the sand at 1.05 in euro-franc. They will continue to push back on any franc appreciation pressure.”

The SNB seems to have injected billions of francs into the foreign exchange market last week in data showing a jump in the amount of cash commercial banks are holding, after the coronavirus fallout drove up the haven currency. The franc reached 1.0612 per euro on Tuesday -- the Swiss currency’s weakest level since March 31The franc has since lost about 0.9% against the euro in the past four sessions, taking the pair to 1.0612 on Tuesday -- the Swiss currency’s weakest level since March 31. Option traders see scope for more short-term franc weakness against the euro.

“The potential for continued large FX interventions by the central bank is the reason we are choosing to be neutral on the franc for now, with 1.05 the key level to watch on the downside,” Morgan Stanley strategists including Matthew Hornbach wrote in a client note.

A spokesman for the SNB declined to comment on its intervention strategy.

The haven currency has gained more than 2% against the euro since the start of the year as the coronavirus shuttered major economies and saw markets spiral into chaos. The franc’s appreciation drove it to 1.0508 on April 16, its strongest level since mid-2015 -- a likely trigger for the SNB to act in currency markets.

Sight deposit data, which are often seen as the closest proxy to SNB intervention signals, rose by 13.4 billion francs ($13.7 billion) to a record 651 billion francs in the week ending April 24. That’s the biggest weekly rise in more than five years.

While 1.05 marks the SNB’s tolerance levels it does not signal that it will sit back for now, said Thu Lan Nguyen, a currency strategist at Commerzbank. The Swiss currency is currently trading at around 1.0560 per euro.

“I think the SNB is not only interested in preventing a further downmove in euro-franc, it would like it to trade at higher levels,” Frankfurt-based Nguyen said. “Back in 2017 it only stopped intervening when EUR/CHF was trading at roughly above 1.10.”

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