Swiss Franc’s Helping Hand from SNB Bearish for GBP, USD, EUR and JPY

“If there were to be an excessive appreciation of the Swiss franc, we would be prepared to purchase foreign currency. If the Swiss franc were to weaken, however, we would also consider selling foreign currency,” - SNB Chairman Thomas Jordan. 

Image © SNB / D. Büttner

The Swiss Franc has continued its ascent to top the major currency league table over multiple horizons thanks to a helping hand from the Swiss National Bank (SNB) that could be most bearish for the likes of GBP/CHF, USD/CHF, EUR/CHF and JPY/CHF in the weeks and months ahead.

Switzerland’s Franc was again the best performing major currency on Wednesday when it notched up intraday gains that lifted its one week return against a rampantly strong U.S. Dollar to more than one percent, making it comfortably the best performing major currency of the period.

This came amid and in the wake of what appeared to be heavy intervention during the Tuesday session by the Swiss National Bank, which recently said it would be prepared to sell reserves in order to ensure that Swiss exchange rates behave in a manner that is consistent with its monetary policy.

“If there were to be an excessive appreciation of the Swiss franc, we would be prepared to purchase foreign currency. If the Swiss franc were to weaken, however, we would also consider selling foreign currency,” Swiss National Bank Chairman Thomas Jordan said on June 16. 

Above: Selected exchange rates on Tuesday, 28 June. Shows co-movements between Dollar and Swiss Franc facing exchange rates. Source: Netdania Markets. Click image for closer inspection.

“We will be observing the developments closely and are prepared to take the necessary measures in every situation to ensure price stability in Switzerland over the medium term,” he also said following the SNB’s surprise decision to lift its interest rate by 0.50% to -0.25% this month

Readers can get more of the Tuesday story here. 

All of this means the SNB is likely selling currency reserves in order to prevent the Swiss Franc from depreciating because any fall by the currency would add further to inflation in Switzerland, which has recently exceeded levels that the SNB considers to be consistent with its price stability target.

That has implications for lots of currencies but none more so than Pound Sterling, the U.S. Dollar, Euro and Japanese Yen because collectively these four account for 90% of the SNB’s very sizable currency reserves, which were valued at CHF1.01 BN (£871 BN) by the end of last year.

Above: USD/CHF shown at weekly intervals with Fibonacci retracements of June 2021’s Federal Reserve induced uptrend indicating possible medium-term areas of technical support for U.S. Dollar. Click image for closer inspection. 

All of this likely explains how the USD/CHF has fallen more than five percent in the fortnight since the SNB’s June monetary policy decision, which is a trend reversal that has been a significant driver of the intervening declines in GBP/CHF, EUR/CHF and JPY/CHF.

Those latter three tend to closely reflect the relative performances of those currencies and the Swiss Franc but when each is measured against the U.S. Dollar, which leaves a lot about the outlook for GBP/CHF, EUR/CHF and JPY/CHF hinged on the performance of USD/CHF up ahead.

Purely for indicative purposes, Pound Sterling Live estimates that GBP/CHF could fall near to the round number of 1.13, if not below there, during the weeks ahead and that EUR/CHF could fall to 0.98 or below in that time. 

There also appears to be a possibility of CHF/JPY rising to 145 or more during this period although there is also as much to be determined here, and in the other Swiss Franc pairs referenced above, by whether or not the recent lows or otherwise tops in GBP/USD, EUR/USD and USD/JPY can hold up. 

In any scenario where the lows or otherwise tops in GBP/USD, EUR/USD and USD/JPY give way, the risk would be of even greater losses in GBP/CHF, EUR/CHF and JPY/CHF during the days and weeks ahead. 

Above: GBP/CHF at weekly intervals with Fibonacci retracements of 2020 recovery indicating possible technical support for Sterling. Click image for closer inspection.