Bank of America Securities analysts highlighted the Swiss National Bank’s recent intervention in foreign exchange markets, which was aimed at weakening the Swiss franc amid significant market turmoil.
Bank of America expects further depreciation of the Swiss franc, as the real effective exchange rate has largely recovered from its decline since the beginning of the year, maintaining pressure on the Swiss National Bank to ease monetary conditions.
“The Swiss National Bank’s move last week represents the second largest influx of intervention this year.” “Forex intervention continues to
“This supports the Swiss National Bank’s dual monetary policy strategy, a combination of interest rate changes and foreign exchange sales to achieve its inflation target,” Bank of America analysts said.
During the first half of 2024, the strong demand for carry trades in the dollar seemed unstoppable, with the G10 forex ranking reflecting this trend. However, by the end of July, the pair had reversed all of its gains since the beginning of the year.
The Swiss National Bank’s response to these sharp and volatile movements in the currency’s value has been significant, as evidenced by the recent surge in sight deposits, which represents the second-largest increase since April amid escalating tensions in the Middle East, and the fourth-largest increase since 2023.
The recent rise in the Swiss franc, which has seen most of its losses recouped earlier in 2024, was a factor in the Swiss National Bank’s decision to cut interest rates on June 20. The bank’s analysts point out that the performance of the real exchange rate is likely to influence the SNB’s monetary policy decisions at its September meeting.
The start of this week saw some reversal in the recent gains made by the Swiss Franc, and Bank of America analysis indicates a bias towards further weakening of the Swiss Franc against currencies such as the Australian Dollar (AUD) and the British Pound (GBP).
These currency pairs are clear indicators that average trading volumes may be returning to normal. Additionally, Bank of America points to potential gains in EUR/CHF and other pairs as more defensive positions against the Swiss franc weakness.
Our final word is to remind readers that the basic relative view
“The relationship between Switzerland and its peers has not changed,” Bank of America added. “Concentration has been the key driver that we believe is making shorting the Swiss franc attractive again.”
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