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Franc-ly we’re delighted, said the SNB

Here’s the Swiss franc at its weakest level against the euro since the Swiss National Bank put its cap into place in September 2011:

Franc-ly we’re delighted, said the SNB

The euro hit SFr1.2485 on Thursday, up 3.3 per cent since the 10th of January and back to levels not seen since May 2011.

From Sebastien Galy at SocGen:

EUR/CHF continued its move higher and is in the process of taking out the layer of strikes between 1.24 and 1.25 and this it seems without even any large scale reallocation of capital out of CHF. Hence, the probability is that the process will accelerate as safe haven bids leave the CHF (bank deposits).

The SNB, so long a place of tortured howls and unreserved reserve accumulation, must be a happy central bank right now. Maybe happy enough to start buying back some of the Swiss currency it has been throwing out there over the past year and a half?

From Deutsche’s Alan Ruskin with our emphasis:

The Swissie is another ‘former safe haven’ that has been hammered of late. Much of this looks to be related to a squeeze on the build-up in prior safe haven flows, both because of ‘the pull’ to EUR on reduced EUR risk premia, and to a lesser degree ‘the push’ from threatened negative CHF depo rates. The big issue here is: at what point does the SNB start to offload some of the excess reserves, and associated excess domestic liquidity, by quietly buying CHF? This would not be unusual behavior at all for a Central Bank facing a peg regime that had previously led to an excessive build-up in liquidity. For now the SNB taking the other side does not seem to be a factor, but it is something to watch out for, especially if upside pressure on EUR/CHF proves both sustained, and/or levels above 1.25 on EUR/CHF can be achieved.

And to keep the floor gossip flowing, here’s Valentin Marinov at Citi suggesting another reasonable possibility earlier in the week:

Last but not least, the SNB could try to promote further CHF-weakness by potentially lifting the floor for EURCHF. Weaker CHF could help the SNB combat the worsening deflation in Switzerland (by importing inflation) and help improve Swiss net exports, adding to real growth. We think that the combined impact of improving outlook for the Eurozone periphery and the newly introduced penalty rates on CHF-deposits could make it easier for the SNB to defend a higher currency floor. This seems to make such policy step likelier than before. We doubt that the SNB will follow the Swiss commercial banks and allow the Swiss cash rate to slip below zero. While this will be yet another deterrent for further inflows into CHF, it will not help the profitability of major Swiss banks. With the tail risks in the Eurozone still abating, it seems that the latter factor still outweighs the former for now.

Although we wouldn’t blame Jordan et al if they just sat back for a little while and enjoyed this one. We just hope they can spare thoughts for all of the assets that might suffer from a lack of Swiss largesse in the near future.

Related links:
The Swiss hill that may become a mountain – FT Alphaville
The Swiss boson – FT Alphaville
The SNB as victim of a decentralised market structure – FT Alphaville
Floored, but not unfloored – FT Alphaville

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David Keohane
(Spending some time as FTAV’s Bombay wallah. Noticeably sweatier but not much else has changed.) David studied economics, politics and journalism before joining the FT in 2011 as a Marjorie Deane fellow. He covered emerging markets, equities and currencies before making the jump over to FT Alphaville in May 2012. In between his degree and masters he wandered into the real world of business where he learnt how to manipulate a spreadsheet and organise meetings where nothing gets decided.
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