Swiss Franc Surges As Central Bank Stands Back

The Swiss National Bank has ceased to stand in the way of the franc’s appreciation, according to data published on Monday, in an eye-catching change in view of the safe-haven currency’s rise to its highest against the euro in more than six years.

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

On Monday, the franc rose to 1.0426 against the euro – its highest level since July 2015 – fueled by the emergence of a new COVID-19 variant, low Swiss inflation and the weakness of the euro.

The level is not far off the 1:1 against the euro the franc briefly reached after the SNB’s last policy shift in Jan. 2015. But the latest sight deposit data – a proxy for the SNB’s interventions – increased by only 94 million francs last week, a fraction of the forex purchases seen last year.

The development could mean the SNB has given up restraining the franc at its current level, because of benign Swiss inflation and the country’s robust economy. Swiss inflation at 1.2% is well within the SNB’s definition of price stability and reduces the need to act.

Due to the much stronger inflation in the Eurozone than in Switzerland, the fair value of the franc has climbed to 1.11 to the euro from 1.20 last year.