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Swiss franc rises to six-year high

The Swiss National Bank is no longer impeding the franc’s appreciation. This is a notable shift in light of the safe-haven currency’s rise to its highest level against the euro in more than six years.

The SNB’s apparent stance will surprise investors who have grown accustomed to the SNB’s mantra that it would fight the Swissie tooth and nail with negative interest rates and foreign currency purchases.

The Swiss franc rose to 1.0426 per euro on Monday. This was its highest level since July 2015. The currency received a boost from the emergence of a new COVID-19 variant, low Swiss inflation, and euro weakness. The franc is not far from the 1:1 level it briefly achieved against the euro following the SNB’s last policy shift in January 2015.

The latest sight deposit data serves as a proxy for the SNB’s interventions. It saw an increase of only 94 million francs last week, a fraction of the forex purchases seen in the previous year.

One reason for the slight increase could be cash withdrawals by bank customers. This occurs every year in the run-up to Christmas. It reduces the number of cash banks hold insight with the SNB.

Nonetheless, an increase of less than 100 million Swiss francs indicates that the SNB chose not to defend the 1.05 level. Because of Swiss inflation and the country’s robust economy, the SNB may have given up on restraining the franc at its current level.

Economists believe the central bank is instead stockpiling firepower to prevent rapid and large-scale appreciation.

Andrea Maechler, a governing board member, stated over the weekend that the SNB was monitoring the franc’s level but that the central bank did not have a specific rate in mind. Swiss inflation, at 1.2 percent, falls well within the SNB’s definition of price stability, reducing the need to intervene.

Dollar weakens

The Dollar Index measures the value of the US dollar against a basket of six other currencies. It fell 0.4 percent to 95.965, a new one-week low.

The USD/JPY fell 0.4 percent to 113.11, just above Friday’s low of 113.05.

Markets quickly repriced the risk of interest rate hikes in the United States. Hence, the USD/CHF fell 0.3 percent to 0.9204. EUR/USD rose 0.3 percent to 1.1328. GBP/USD rose 0.1 percent to 1.3323, off Friday’s 11-month low of 1.3278. Meanwhile, the risky AUD/USD fell 0.3 percent to 0.7118, just above a 12-month low. Finally, NZD/USD fell 0.2 percent to 0.6807.

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