Daily Market Recap - USDCHF: SNB has been very aggressive in curtailing the franc in 2020

The Swiss National Bank (SNB) stepped up its interventions in 2020 to combat the overvaluation of the Swiss franc, a major safe haven, making nearly 110 billion francs worth of currency purchases to absorb the shock of the pandemic, it said Monday.

In 2020, the Swiss central bank's currency purchases amounted to 109.7 billion Swiss francs (99.3 billion euros), it said in its annual management report, with most of the purchases taking place in the first half of the year when pressure on its currency was “particularly strong,” it said.

In the first half of the year, these interventions on the money markets to counteract the feverish pressure on its currency climbed to 90 billion francs.

By comparison, its currency purchases were limited to 13.2 billion francs over the whole of 2019.

Last year, “the franc, which is considered a safe haven, repeatedly came under strong upward pressure,” the Swiss central bank recounted in the report, stressing once again that its expansionary monetary policy had again been necessary to keep the pressure on the franc from increasing.

“A strong appreciation of the franc would have put an additional burden on the Swiss economy during the crisis,” it said. In the second half of the year, the need for intervention was less pronounced, it added, as the pressure on her currency eased.

The Swiss franc is one of the major safe-havens, like gold, the Japanese yen, and German bonds. When the markets are shaken, investors massively hide behind its currency, and these movements penalize Swiss companies, which see the prices of their export products rise.

To combat the overvaluation of its currency, the SNB relies on a negative rate applied to the assets that banks must entrust to it, with the aim of discouraging investments in francs, which it complements by intervening in the markets when the price of its currency soars.

(Chart Source: Tradingview 22.03.2021)

The SNB will hold its quarterly monetary policy meeting on Thursday. Until then, the likely range of the USDCHF should continue as it has in the past 2 weeks between the 0.935 and 0.922 handles. CHF bulls will be hopeful for a change in the stance of the SNB policymakers to hint at a return to positive real rates in the near future.

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