Back
8 Jan 2015
EUR/CHF back to intervention level - UBS
FXStreet (Córdoba) - The drop in oil prices and the demand for safe haven currencies are currently some of the most important investment themes on fx markets, according to the UBS analyst team, who think the SNB setting negative interest rates might not be enough to fence off safe haven demand for Swissy.
Key Quotes
"USD higher, Euro lower, JPY stronger, GBP, AUD and Scandies lower are typical moves in such an environment. Interesting to note, that the EUR/CHF exchange rate is also heading lower. The introduction of the floor has been undermining the safe haven role of the Swiss franc for many years now. Only over the last couple of months, this has changed and investors again started to buy CHF for safe haven reasons".
"The introduction of negative interest rates of -0.25% in mid-December by the SNB was probably not enough to fence off safe haven demand for Swiss francs. In recent days the EUR/CHF exchange rate slipped back down below 1.2010. Here the SNB had to intervene in December and it seems clear that further interventions have already been happening or are likely to happen soon".
"On Wednesday the SNB published the monthly IMF reporting, which showed an increase of reserves excluding gold from 469 bln CHF in November to 502 bln CHF in December. We think that about 20-25 bln of this increase can be explained by interventions. The rest is most likely caused by the appreciation of the USD, the rise in bond prices and gains on the equity markets”.
“If the demand for euros does not pick up soon, we would expect the SNB to cut interest rates deeper into the negative or even reduce the exemption threshold to protect the floor at 1.20".
Key Quotes
"USD higher, Euro lower, JPY stronger, GBP, AUD and Scandies lower are typical moves in such an environment. Interesting to note, that the EUR/CHF exchange rate is also heading lower. The introduction of the floor has been undermining the safe haven role of the Swiss franc for many years now. Only over the last couple of months, this has changed and investors again started to buy CHF for safe haven reasons".
"The introduction of negative interest rates of -0.25% in mid-December by the SNB was probably not enough to fence off safe haven demand for Swiss francs. In recent days the EUR/CHF exchange rate slipped back down below 1.2010. Here the SNB had to intervene in December and it seems clear that further interventions have already been happening or are likely to happen soon".
"On Wednesday the SNB published the monthly IMF reporting, which showed an increase of reserves excluding gold from 469 bln CHF in November to 502 bln CHF in December. We think that about 20-25 bln of this increase can be explained by interventions. The rest is most likely caused by the appreciation of the USD, the rise in bond prices and gains on the equity markets”.
“If the demand for euros does not pick up soon, we would expect the SNB to cut interest rates deeper into the negative or even reduce the exemption threshold to protect the floor at 1.20".