CHF: New unofficial floor rate of 1.05 for EUR/CHF - Natixis

Nordine Naam, Research Analyst at Natixis, notes that t

Key Quotes

“It seems that the central bank has intervened less in the foreign exchange market. As we have underlined on several occasions, the central bank’s policy is not sustainable over the long term given the very sharp increase in its foreign exchange reserves and, more generally, in the money supply.”

“It would seem that the central bank is intervening less in the foreign exchange market to defend the 1.08 floor rate for the EUR/CHF. The Swiss franc remains under significant pressure given the country’s sizeable current account surplus (10%), the political risks in Europe (Italian referendum on 4 December, French elections in 2017) and the prospect of a further QE extension by the ECB (December). In the absence of capital outflows, the Swiss franc can but appreciate, forcing the central bank to intervene regularly in the foreign exchange market to avoid an excessive appreciation of the currency and stoking deflationary pressures.”

“Even though the Swiss franc remains overvalued, economic activity seems to be improving, as underlined by the latest manufacturing PMI (which increased to 54.7 in October) and trade surplus (which improved as a result of a 4.3% month-on-month increase in exports in September). Under these conditions, it may well be the central bank has decided to lower its unofficial floor for the EUR/CHF to 1.05 (from 1.08).”