Swiss Franc (CHF) Exchange Rate Pressured by Stimulus Speculation and Gold Referendum

On Tuesday the Swiss Franc was trading within touching distance of the 1.20 cap against the Euro placed on the currency pairing by the Swiss National Bank (SNB) over three years ago. With concerns that the Eurozone could be on the verge of recession keeping demand for the Euro depressed, the Swiss Franc climbed to 1.20242 against its European peer during the local session. The CHF/EUR pairing has also been feeling the heat ahead of the Swiss Gold Referendum, due to be held at the end of this month.

If the referendum passes with a ‘Yes’ vote, the SNB will have to hold 20% of its reserves in gold, around 12% more than is currently the case. Such an action would leave the central bank with less room to hold foreign currency reserves and would place additional pressure on the Franc-Euro cap. According to forex strategist Jonathan Webb; ‘When they [the SNB] were intervening during the Eurozone crisis we didn’t actually touch the 1.20 level apart from temporarily. Typically they were intervening between 1.2005 and 1.2010. If the referendum did pass it would make the SNB’s life much harder to sustain the floor.’ Similarly, another industry expert was quoted by Bloomberg as saying; ‘The ceiling of the Swiss Franc versus the Euro may well get tested. Ceilings are enforceable only when they represent an unconditional commitment. As soon as someone blinks, the market will test the resolve of policymakers.’

On Tuesday the Swiss Franc declined against a supported Pound, with the GBP/CHF exchange rate managing to achieve a high of 1.5372. The Swiss Fran was trading in a narrow range against the US Dollar, moving between lows of 0.9665 and highs of 0.9700. Swiss data with the potential to inspire further CHF/EUR movement includes the nation’s Producer Price Index for October. The PPI is believed to have gained after falling by -0.1% on the month in September. The index is expected to register an annual figure of -1.35%. Investors will also be paying close attention to the week’s major market-moving reports from the UK, Eurozone and US. Of particular note will be the UK’s employment/wage growth figures, the Bank of England’s inflation report, the Eurozone’s growth figures and advance US retail sales stats. Signs that the US is moving closer to normalising interest rates could spark a risk-off environment and boost demand for the safe-haven Franc, but the currency is likely to remain under pressure until the gold referendum is held at the end of the month.