FXStreet (Delhi) – Chris Turner Global Head of Strategy at ING, suggests that they misjudged the SNB’s tolerance of a stronger CHF and the near CHF50bn valuation loss on FX reserves suffered on the removal of the 1.20 floor.
Key Quotes
“With this experience in mind, we note the SNB’s current commitment to use both FX intervention and negative interest rates as key monetary policy tools. We particularly have doubts about the former given that the SNB’s key rationale for exiting the floor was to avoid a huge build-up in FX reserves. At the time it had said that continued support of the floor in face of ECB QE could have seen the SNB’s balance sheet explode to multiples of GDP. We thus find it strange that the SNB is still offering us FX intervention as a key tool for monetary policy.”
“Even the SNB’s balance sheet surge in 2014 was insufficient to hold the floor at 1.20. And despite SNB’s occasional FX intervention this year (near 1.04 in early July at the time of the Greek referendum) we very much doubt the SNB has the stomach for a major intervention campaign which would see its balance sheet to GDP move closer to the 100% level. Balance sheet differentials thus look set to weigh on EUR/CHF.”
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