Swiss Franc Sails to Six-Year High With No Sign of SNB Reply
The franc barreled through a key level to hit a six-year high against the euro, with no sign of opposition from the Swiss National Bank.
Investors on edge about a new coronavirus variant are buying haven assets, sending the Swiss currency to as high as 1.0433 per euro on Friday. Although the SNB has pledged to use foreign exchange interventions if needed to tame pressure on its “highly valued” currency, there has been no sign of policy makers stepping in during this latest bout of risk aversion.
The currency’s advance beyond 1.05 per euro, which was considered a major threshold, comes against the backdrop of spiraling inflation around the globe. It also follows robust data on the Swiss economy in the third quarter, with a boom in consumer spending on restaurants and entertainment helping to offset a drop in trade.
“The situation with accelerating inflation and robust growth allows the SNB to tolerate a stronger currency,” said Credit Suisse Group AG economist Maxime Botteron. With supply chain disruptions, the big problem for the global economy, “in this context strong currency interventions aren’t really necessary.”
A spokesman for the SNB declined to comment.
The franc climbed 0.4% to 1.0454 against the euro at 9:25 a.m. in New York, strengthening to levels last seen in 2015. That year, the central bank unexpectedly scrapped its cap on the currency, which briefly touched parity with the euro.
Interventions have been part of the central bank’s monetary policy toolkit for more than a decade as it tries to prevent too much of an appreciation of the franc that would damp economic growth and exacerbate deflationary pressures. Its benchmark interest rate is at -0.75%.
Governing Board Member Andrea Maechler reiterated the SNB’s willingness to use foreign exchange interventions at an event in St. Gallen earlier this month. The SNB’s strategy is to achieve the biggest market impact for the least amount of money, the rate setter has also said.
While consumer price pressures in Switzerland have picked up, they remain well below the increases seen in neighboring Germany, thanks in part to the strong currency.
The inflation rate clocked in at 1.2% in October, well within the bounds of what policy makers consider price stability.
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