Weakness in the euro leaves the Swiss franc flirting — bar its Brexit-vote surge in June — with its strongest level in 18 months.
The move has prompted the research company Capital Economics to ask whether the Swiss National Bank now may be willing to tolerate a slightly higher currency.
Jessica Hinds, European economist at the London-based organisation, accepts that the Swissie’s recent gains may be small compared with its surge following the SNB’s abandonment of its currency ceiling in January 2015: the “Frankenschock”.
“But it warrants consideration nonetheless,” she says.
“While the SNB gave up its explicit currency ceiling two years ago, it has since intervened in FX markets on a fairly regular basis to keep the currency in check. Yet there have been no indications that this latest rise has provoked the bank to intervene.”
Why the more tolerant stance? Ms Hinds reckons it “might be a response to pressure from the US administration for countries with large current account surpluses to allow their currencies to float freely”.
More importantly, Swiss data of late imply the economy is managing reasonably well with the firmer franc.
Also, deflationary pressures have eased, so there perhaps is less need to try to raise import prices by weakening the currency. And, note, the Swissie is little changed versus the dollar since the US election last November so its gains in trade-weighted terms are modest.
Still, CapEco sees Swissie/euro parity by year-end amid eurozone political fears.
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