Swiss Franc Could Rise Past Unofficial Line in the Sand

(Bloomberg) -- The franc, already at the strongest since 2015, can rally even further for Goldman Sachs Group Inc. as markets test the resolve of the Swiss National Bank to keep it in check.

The currency neared 1.05 against the euro on Thursday, the level that some market players deem to be the unofficial line the SNB defends. Investors should bet on the Swiss currency reaching 1.02 in three months, according to Michael Cahill, an economist at Goldman, making the call more bullish than most forecasts compiled by Bloomberg.

The recent magnitude of central bank intervention to limit the franc’s ascent has only been matched twice before, and the SNB will be wary of persistent intervention, Cahill said. Investors are still turning to the franc, yen and dollar as havens during the coronavirus pandemic.

“Recent events in Europe have led to increased tensions along many of the same stress points that have troubled the region over the last decade, and this has put renewed appreciation pressure on the traditional safe haven currency on the continent,” said Cahill. “The pressures on the currency seem unlikely to be resolved quickly, and past periods of large interventions have not been sustained for very long.”

The franc has gained more than 3% against the euro so far this year, lagging only the yen and dollar. The euro-franc pair was down 0.1% at 1.0506 as of 4:40 p.m. in London. Traders in options markets have been hedging against a bigger franc surge, to parity with the euro.

Line in Sand

Still, the euro-franc pair has held above the 1.05 level in recent weeks, with SNB policy makers appearing to stage their biggest intervention in foreign-exchange markets since 2015 at the end of April. They said they remained ready to do more if needed.

That leads some to disagree with Goldman’s view.

“I don’t think the SNB will throw in the towel anytime soon,” said Jeremy Stretch, the head of G-10 currency research at Canadian Imperial Bank of Commerce. “It would appear that 1.05 is a bit of a line in the sand.”

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