SNB to favour further currency intervention, EUR/CHF likely to trade at 1.09 by 2016-end

Recently, the Swiss franc is facing upward pressure due to the heightened political uncertainty and the resultant demand for safe-haven destinations.

This has resulted in the Swiss National Bank (SNB) to intervene a great deal in the foreign exchange markets, and especially after the UK’s vote to leave the European Union, said Lloyds Bank in a research report. Since then, the continued increase in the Swiss central bank’s holdings of foreign currency reserves to a record high, implies that the SNB has continued to stay active.

“With the deposit rate already at -0.75 percent, we suspect that the SNB will refrain from lowering interest rates further to weaken the exchange rate”, added Lloyds Bank.

The SNB is likely to favour further currency intervention. This is expected to keep the EUR/CHF pair trading in a narrow range.

“We forecast the pair at 1.09 at year end before rising gradually to 1.11 by end 2017”, stated Lloyds Bank.

But additional marked inflows into the Swiss franc might result in a further aggressive approach from the Swiss central bank. It might lower the level of domestic banks’ reserves that are at present exempt from negative interest rates.