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Swiss National Bank Chairman Thomas Jordan is set to speak later today at the Etavis Group. While we aren’t expecting him to make any market moving announcements, we are using the event to update our thoughts on the Swiss franc and specifically the EURCHF 1.2000 price floor.
Firstly, in regards to today, we expect Jordan to follow the tone he used when he spoke at the end of April following the central bank’s March interim results release. At that time, Jordan indicated that the SNB was seeing improvement in the domestic economy, but continued to believe that the Swiss franc was overvalued. Jordan also hinted that to the fact that the SNB wouldn’t take any chances with removing its EURCHF price floor as long as the global economy was barely recovering (what we wrote at the time: Going Long the EURCHF) .
The other big issue for the SNB is inflation. Since last month’s speech, Swiss inflation data has shown little indication of the SNB’s monetary policies stimulating any sort of runaway inflation. Both last week’s Swiss CPI figure and this morning’s PPI numbers were lower than expected. As such, with uncertainty rearing its ugly head in the EU, as well as the Swiss economy showing only slow growth, we see little reason for Chairman Jordan to change his views. However, with the Euro under overall pressure, and costs rising to hold the EURCHF price floor, we don’t believe that the SNB will act aggressively to raise the target rate at this time.
But…… even without the SNB, the Forex markets look like they are decreasing their demand for Swiss francs.
One of the things we are wondering, is whether the current EURCHF price floor has finally caused Euro origin franc buyers to look elsewhere with their trades. Specifically, the Pound has seen steady demand over the past month. This has been seen in the GBPUSD which has found buy on the dip demand following any weakness on overall risk selling. This has caused the EURGBP in recent days to trade to 0.80000, its lowest level since 2008. In the meantime, the EURCHF has been meandering around just above 1.2000, as it has set a strong base around 1.2010. While the EURCHF hasn’t made much of a move higher, the assault on breaking 1.2000 that was seen last month appears to have subsided. As such, we would be surprised if a big chunk of the pound’s current demand isn’t coming from Swiss franc buyers searching for alternative trades.
Growing SNB Opposition
One last note, In its Forex comments last week, JP Morgan quoted that the IMF encouraged “the SNB to return to a freely floating exchange-rate regime once the growth and inflation outlook normalizes.” Basically, the IMF was letting the SNB know that it prefers a weaker Euro as a method of stimulating the EU’s economy. While we don’t think that the IMF’s words will have much sway on the SNB at this time, their position could become louder in time.