SNB intervenes for 6.3 billion francs in one week, total 10bn Brexit intervention

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George Dorgan
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Interventions:
The SNB intervenes for 6.3 bn francs in the week ending last Friday, the week one after Brexit. Already on Day One , the SNB intervened for an estimated 3-4 bn francs

This is once again the a new weekly high since the end of the EUR/CHF peg in January 2015. Seven billion sight deposits come from Swiss banks, when fearful investors moved their money on Swiss bank accounts.

FX: Unexpectedly for us, the SNB raised the intervention level to 1.0850. Apparently the central bank converted GBP->CHF flows into GBP->EUR flows – via EUR/CHF purchases.

Speculators: are long CHF 10K contracts against USD versus 6.3K contracts last week. (CFTC data)

Intervention levels are too high, in particular on dollar purchases

The SNB converts a certain percentage of the inflows into USD to keep up the USD share at around 33%. Dollar purchases at 0.97 CHF are far too expensive in a historical (e.g. 0.75-0.80 CHF in 2011) and future perspective (when global inflation comes back). Similar to the EUR purchases at 1.40 in 2010, dollar purchases at elevated levels of 0.97 can pave the way for a SNB bankruptcy.

SNB balance sheet now over 100% of GDP It should be remarked that the SNB assets are volatile FX investments. FX investments are less than 3% of the BoJ, ECB, Fed and BoE balance sheet. Central banks from Emerging Markets typically buy foreign bonds. But these countries have far higher inflation and therefore – over time – a weaker local  currency. But the Swiss Franc is a currency that by tendency appreciates.

full background on sight deposits here.

About George Dorgan

George Dorgan (penname) predicted the end of the EUR/CHF peg at the CFA Society and at many occasions on SeekingAlpha.com and on this blog. Several Swiss and international financial advisors support the site. These firms aim to deliver independent advice from the often misleading mainstream of banks and asset managers. George is FinTech entrepreneur, financial author and alternative economist. He speak seven languages fluently.

My articlesMy siteAbout meMy books
Follow on:LinkedINTwitterSeeking AlphaCFA SocietyEconomicBlogs