Last week, the demand for safety pushed EUR/CHF close to its all-time low, posing a dilemma for the Swiss National Bank (SNB). The stronger Franc leads to lower imported inflation but also makes exports more expensive for domestic businesses. Swiss exporters have called on the SNB to counteract the appreciation, according to Commerzbank’s FX analyst Michael Pfister.
Rate Cuts vs. Currency Interventions: SNB’s Options
With the Franc steadily appreciating against the Euro, the SNB can react by cutting interest rates or by buying foreign currencies and selling Swiss Francs. However, the current option is to intervene until the next meeting. Some believe that SNB interventions occurred last week, as seen in the rise in sight deposits and the movement in CHF.
While it is possible that the SNB intervened, the movement in EUR/CHF may have been driven more by safe-haven demand than by the SNB. It is crucial to intervene strategically, as the Bank of Japan has recently done. As the Swiss Franc’s strength has eased and EUR/CHF stabilizes around 0.95, a rate cut is more likely than currency interventions for now.
Analysis and Implications for Investors
The dilemma faced by the SNB has implications for investors. A stronger Franc may impact Swiss exporters but also lead to lower imported inflation. If the demand for safe havens remains stable and EUR/CHF does not target new lows, interest rate cuts are likely to be the preferred choice for the SNB.
Investors should monitor the SNB’s actions and consider the impact of currency interventions or rate cuts on their portfolios. The stability of EUR/CHF and the strength of the Swiss Franc will continue to be key factors to watch in the coming weeks.