The SNB surprised some players last week by reducing its key rates by 25 basis points, specifying that the recent strengthening of the Swiss franc had played a key role in this decision.
While the Swiss franc had weakened significantly since the start of the year (drop of more than 5% against the EUR), Thomas Jordan, president of the BNS, indicated at the start of the month that the BNS could act if this weakening was to last. Operators reacted to this possible intervention by strengthening their positions in Swiss francs, thus beginning an appreciation of the national currency.
Supported by increased uncertainty in foreign exchange markets due to political developments in emerging markets and Europe, the Swiss franc is playing its traditional role as a safe haven.
Furthermore, the results of the elections in Mexico led to a wave of liquidation of so-called “carry trades”, largely favored at the start of the year due to low carry. These strategies involve short positions in the Swiss franc against long positions in the peso. By liquidating them, investors sell the peso and buy the Swiss franc, thus fueling its appreciation. Closer to home, the announcement of early elections in France has also amplified this trend.
Faced with this movement, the SNB surprised some players last week by reducing its key rates by 25 basis points, specifying that the recent strengthening of the Swiss franc had played a key role in this decision. In this context of political uncertainty, a certain caution is required with regard to the euro. French politics should remain the main driver of EUR/CHF movement over the coming days. However, according to our analysts, only a “Frexit” would lead to a general weakening of the single European currency. However, none of the three major political blocs in France (National Rally, New Popular Front, Presidential Majority) displays such desires.
