SNB might maintain a EUR/CHF range centred on 1.05 – Rabobank

FXStreet (Barcelona) - Jane Foley, Senior Currency Strategist at Rabobank, views that SNB might intervene in the FX space and maintain a EUR/CHF range centred on the 1.05 area.

Key Quotes

“The SNB’s decision to cut the deposit rate to -0.75% will have had some impact in diverting inflows away from the CHF; we have frequently argued that this year’s actions of European central banks will have enhanced the carry available on GBP. However, investors seeking a safe haven are more concerned with liquidity that returns.”

“A safe haven currency is not defined by its interest rates but by the stability of government, legal and tax systems. Switzerland’s enviably current account surplus and flat budget position mean it has some of the best fundamentals in the world.”

“While safe haven demand for the CHF may not be welcomed by the SNB, but it is a function of Switzerland’s own success.”

“Over the past week or so the upward correction in EUR/USD will have been met with some relief for central banks such as the SNB, DKK and Riksbank which are battling to stop the ECB exporting its deflationary risks to them via the exchange rate.”

“That said, EUR/CHF has failed to hold the initial gains made after the FOMC meeting on March 18. Despite further warnings from the SNB’s Zurbruegg yesterday that the SNB may still intervene in the FX market, policy inaction by the SNB last week and this week’s news of conflict in Yemen have pushed EUR/CHF lower.”

“We expect that the SNB will attempt to maintain a range centred on the 1.05 area in the coming months and that further policy measures including intervention remain likely.”

“Switzerland’s battle against an overvalued exchange rate, however, may yet last a long time. Only when healthy levels of growth and inflation are restored to the Eurozone is the CHF likely to see real and lasting respite.”