Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Weak Dollar Is Another Headache for SNB With Limited Repertoire

Published 07/09/2020, 11:11
Updated 07/09/2020, 12:18
© Reuters.

© Reuters.

(Bloomberg) -- A weak dollar is the latest headache for the Swiss National Bank, which relies on foreign exchange interventions as a form of quantitative easing due to the small size of its local bond market.

While the euro has long been its primary focus, the central bank appears to have continued limited interventions even as the franc depreciated versus the common currency, suggesting it’s been casting its net more widely.

A measure of cash commercial banks have with the SNB, considered an early gauge of interventions, rose by 1.4 billion francs ($1.5 billion) last week, data on Monday showed. The SNB’s foreign exchange reserves inched up to 848 billion francs in August, close to the June record.

“They have few alternatives,” said Credit Suisse (SIX:CSGN) Group AG economist Maxime Botteron. “It’s less weakening the franc against a single currency and more just to pump more liquidity into the system to show the SNB is committed to a very expansive monetary policy.”

A spokeswoman for the SNB declined to comment on the figures published on Monday.

The U.S. Federal Reserve’s shift in strategy to periodically tolerate faster inflation has extended the dollar’s recent decline versus other major currencies and is impacting policy making in Europe.

Economists expect the European Central Bank to step up its crisis response later this year with an increase emergency bond-buying program. The SNB hasn’t been able to go that route, and instead is relying on negative interest rates plus currency interventions to control the level of the haven franc and fight off deflationary forces.

SNB President Thomas Jordan reaffirmed that two-pillar policy last week.

Against the dollar, “the franc is somewhere between fair value and overvalued,” said UBS Group AG (SIX:UBSG) economist Alessandro Bee. “They’re probably not super relaxed but they don’t see it as as much of a problem as with the euro.”

©2020 Bloomberg L.P.

 

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.