The Swiss National Bank is issuing language that suggests it may intervene (and sell Swiss Francs) to depreciate the value of the Swiss Franc, a move it made a number of times in 2009 to maintain a tight band to quell the appreciation of the Franc in Q1 2009. With the sovereign debt contagion fears in Europe bubbling since the early part of this year, the Franc has gained substantially versus the EUR, up 10.96% YTD, hitting a high on 6/30, before selling off in lock step with gains in the EUR-USD over the last two days, to $1.25.
With Swiss Central Bankers reiterating that deflation risks have “largely disappeared”, they’re now worried that a Franc at these levels will choke off exports, which account for more than half of Swiss GDP. While the negative correlation of Exports to its closest trading partners in the EU and the CHF-EUR is only -0.44 over the duration of the chart, the correlation is nevertheless a formative one we’ll be following.
Matthew Hedrick
Analyst
