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SNB Reaffirms the EUR/CHF peg

Last updated 9/15/2011 4:02 AM ET (GMT -5) 0 Comments - Add your comment

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Boris Schlossberg

Director of Currency Research, GFT

It its quarterly policy statement today the SNB reaffirmed its commitment towards defending the EUR/CHF 1.20 exchange rate in order to prevent further appreciation of the franc and offered a a rather dour assessment for economic growth in the second half of 2012.  The central bank stated that it “will enforce the minimum exchange rate of CHF 1.20 per euro set on 6 September with the utmost determination,” adding,”Even at a rate of CHF 1.20, the Swiss franc is still high and should continue to weaken over time. If the economic outlook and deflation risks so require, the SNB will take further measures.”

In a relatively stark and blunt language the SNB outlined the economic challenges facing the G-20 as the year comes to a close noting that ,”The outlook for the advanced economies, in particular, has worsened considerably. In Switzerland, economic activity is suffering from both the strong Swiss franc and the softening in international demand. The SNB expects growth to come to a halt in the second half of the year.”

The Swiss central bankers are clearly concerned about the risk of deflation, no doubt exacerbated by the recent CPI and PPI readings both of which were negative.  The Swiss producer and import prices in particular showed very strong deflationary evidence with prices dropping the most in 33 months to decline by -1.2%  versus expectations of -0.3% fall.

Overall, the message from the SNB was unequivocal and clear, “Don’t challenge us.” The Swiss monetary authorities are determined to maintain the EUR/CHF floor at 1.2000 and ideally would like to see the pair trade higher towards the 1.30 level. For the market appears to be taking them at their word and the Swissie weakened in the aftermath of the release with EUR/CHF rising nearly 50 points to hit 1.2080 in morning European trade.

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About The Author

Boris Schlossberg began his Wall Street trading career more than 20 years ago at Drexel Burhnam Lambert. There, he traded nearly every type of financial product on the market in the U.S., from equities and options to stock index futures and foreign exchange. His innate ability to analyze market information and use it to trade has helped him become an industry-recognized, “go to” trading professional.

These days, whenever the markets move, many organizations turn to Schlossberg for his take on the situation. He is a weekly contributor to CNBC's Squawk Box and a regular commentator for Bloomberg radio and television. His daily currency research is widely quoted by Reuters, Dow Jones and Agence France Presse newswires and appears in numerous newspapers worldwide. Schlossberg has written for publications like SFO magazine, Active Trader and Technical Analysis of Stocks and Commodities. He is also the author of Technical Analysis of the Currency Market and the co-author of Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game with Kathy Lien. He joined GFT in 2008.