Swiss Franc (CHF) Volatile as Swiss National Bank Reconsiders Euro Cap

The Swiss Franc (CHF) exchange rate was broadly softer on Wednesday as investors feared the Swiss National Bank (SNB) could readjust its Euro-Franc cap. In November the SNB will be subject to a referendum which could have a serious impact on the way in which the central bank conducts fiscal policy. The proposals would see the central bank forced to hold at least a fifth of its assets in gold – limiting its ability to build foreign exchange reserves and safeguard its cap of 1.20 Francs per Euro. According to one foreign currency strategist; ‘Should this go through it’s going to have profound effects on the SNB’s ability to hold the floor. Looking out at the volatility curve you’re starting to see people are pricing it in. Not tomorrow, but two or three months down the line, people are expecting something to happen.’

Further Franc declines were occasioned after the Swiss KOF Economic Institute presented its Autumn Forecast. With the economic situation in the Eurozone, Switzerland’s largest trading partner, deteriorating and the global economic outlook darkening, KOF negatively revised its projections for Swiss expansion. It was stated; ‘The KOF has made a slightly downward revision of its forecast for Swiss economic growth in the coming year. It now expects GDP growth of 1.7 per cent this and next year (June forecast: 1.8 per cent or 2.0 per cent) and 2.1 per cent in 2016. The reason for this is, on the one hand, the weaker international context and, on the other hand, data revisions. The unemployment rate will hardly change in the coming months. The general increase in prices continues to be low.’

As well as declining against a pressured Pound (GBP/CHF) the Franc softened against the Euro (EUR/CHF) ahead of tomorrow’s influential German employment and inflation statistics. The Swiss Franc was however able to push higher against the US Dollar as the North American asset extended its bearish run amid speculation that the Fed will present a dovish policy statement. The Federal Open Market Committee is due to deliver its interest rate decision and policy statement later today. Before the weekend further Swiss Franc exchange rate movement could be triggered by the Swiss KOF Leading Indicator and SNB third quarter earnings figures. Investors will also be taking an interest in the Swiss National Bank’s third quarter currency allocation report. The Eurozone’s Consumer Price Index could also have an impact on the Swiss Franc before the weekend.