SNB policy

Whatever changes are made to SNB compliance policy in the wake of the errors that brought the resignation of Hildebrand yesterday exchange rate policy is set to remain unaltered. 

The spike lower in EUR/CHF after yesterday’s news of the resignation was very short-lived suggesting that the market on balance expects no change in policy direction by the SNB board.  After all, there is no change in the fact that the Swiss economy is suffering from deflation nor in the risk that CHF strength could constrain growth potential.  That said the broad recovery of the USD which has lifted USD/CHF by around 35% from its August 2011 lows will be offering some comfort to SNB policy makers. 

While the USD move is significant, the EUR is far more important to the Swiss economy (as is evident in the correlation between CHF/EUR and the effective exchange rate - see graph).  While it is possible that softer tone of the CHF vs. the USD will have reduced the risk that the SNB will act imminently to push higher its EUR/CHF1.20 ‘floor’, the risk of a move is still on the table particularly given the recession risk in the Eurozone and the accompanying threat to Swiss export potential. 

We continue to see dips in EUR/CHF as buying opportunity though given the risk of further USD strength in Q1 we recognise the risk that any increase in the EUR/CHF1.20 floor may be delayed beyond March.


source: Rabobank