CHF: It is unclear when SNB plans to react – Commerzbank

The Swiss Franc (CHF) benefited significantly on Wednesday both against the US Dollar (USD) and the Euro (EUR), Commerzbank FX analysts Ulrich Leuchtmann and Michael Pfister note.

SNB prefers a weaker Franc

“The move is somewhat surprising. In the past, it was always said that CHF would strengthen when the USD strengthened. Yesterday it was the other way round. The only way I can explain this is that when the market is worried about Federal Reserve’s (Fed) independence, it prefers to look for other currencies that are perceived as safe havens and where fewer rate cuts are expected.”

“However, things are now getting interesting because the SNB and the Japanese Ministry of Finance are currently pursuing opposing intervention policies. Japan wants a stronger Yen, while in Switzerland the SNB prefers a weaker Franc. I would therefore be cautious about betting on too much CHF strength.”

“SNB is unlikely to intervene at levels just below 0.97 in EUR/CHF. But if it goes further towards 0.95? Then the risk of intervention certainly increases.”