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The following analysis is courtesy of Laurent Bakhtiari, Market Analyst at IG (Switzerland), a subsidiary of IG Group Holdings plc (LON:IGG).
The SNB is still intervening massively to stabilize the EURCHF exchange rate
The SNB foreign currency reserves came out this morning. They were significantly higher than the previous month (602.1bn vs 587.6bn CHF). This is the highest number ever for the SNB, which keeps increasing its reserves since early 2009 and dramatically accelerated since 2012.
This shows what, intuitively, we thought: the SNB is still intervening massively to stabilize the EURCHF exchange rate, which is trapped in the 1.10-1.11 range since late April, and almost always above 1.09 since January.
And this is not going to stop.
In fact, fears of a Brexit are adding pressure on the GBP (which dropped versus the USD by more than one figure yesterday morning) and the EUR. This comparatively makes the CHF very attractive.
We think that this turmoil is not over.
The Brexit pressure is going to increase and tomorrow’s CPI figures will remain very low, preventing Switzerland from increasing rates in the medium-term, and appreciating its currency. In addition, Yellen indicated that the dramatic NFP figures might make her consider postponing the next rate hike. This also impacted negatively the USD and comparatively appreciated the CHF.
We think that until the end of the month, the SNB will do whatever is necessary to keep the EURCHF rate in the 1.10-1.11 range.
One thing is certain: the Governing Board of the SNB is looking forward to the summer period, when all these issues will be over.