Swiss National Bank President Thomas Jordan confirmed on Monday that the central bank intervened in markets overnight
Swiss Step Into Currency Market as Greece Adds to SNB’s Woes
Greece’s decision to effectively call a public vote on its euro-area membership is one more blow for Switzerland, the country where overwhelming demand for its currency is pushing it toward a recession.
Swiss National Bank President Thomas Jordan confirmed on Monday that the central bank intervened in markets overnight. That helped reduce gains that had pushed the franc to its highest level in almost four weeks against the euro. Traders turned to the relative safety of Swiss assets after Greek Prime Minister Alexis Tsipras called a referendum late on Friday on the terms of a deal from international creditors.
“Even without Greece, there should be pressure on euro-Swiss to the downside and this is just an additional burden,” said Thu Lan Nguyen, a currency strategist at Commerzbank AG in Frankfurt. “We are back to square one.”
The franc is the best-performing major currency this year, with its appeal as a haven overriding negative interest rates and the possibility of more intervention by the SNB.
It appreciated 0.2 percent to 1.0411 per euro as of 9:40 a.m. London after earlier jumping 1.1 percent to 1.0315, the strongest level since June 2. It has surged 16 percent against the euro since Dec. 31. Gains accelerated after the SNB abandoned its exchange-rate cap of 1.20 in January.
Popular Destination
Switzerland is a popular destination for investors in times of market stress, pushing the currency to levels that Jordan described this month as “markedly” overvalued.
That strength has put the country on the brink of its first recession in six years, while consumer prices have dropped on an annual basis in each of the seven months through May.
Jordan said today the events at the weekend made it necessary to step into the currency market after increased demand for francs. He said a Greek departure from the euro would put the whole currency mechanism in question.
“This is the first line of defense and the SNB will be keeping their fingers crossed that we don’t see the worst-case scenario play out,” said Jeremy Stretch, head of foreign exchange strategy at Canadian Imperial Bank of Commerce in London. “As we know in past episodes, you can’t always beat the markets.”
Options trading signals more strength is possible, with the premium on six-month options to buy the franc versus the euro over those that give the right to sell at more than three percentage points at the end of last week, the most among 25 peers.
Source: Bloomberg – Swiss Step Into Currency Market as Greece Adds to SNB’s Woes
