By John Revill
ZURICH (Reuters) – The Swiss National Bank looks to have kick-started its forex purchases again — firing a warning shot to investors who have bought the safe-haven currency and pushed it to two-year highs against the euro.
Sight deposits — a proxy for the central bank’s interventions — rose by 1.7 billion francs to a record 581.189 billion Swiss francs ($586.53 billion) last week, according to SNB data released on Monday.
The increase suggests the SNB was active again buying foreign currencies with newly created francs to ease the upward pressure on the local currency, analysts said.
“I think the SNB was intervening in the market last week — this was the biggest weekly increase in sight deposits since May 2017. This is a clear sign the SNB was active in the market,” said Credit Suisse (SIX:) economist Maxime Botteron.
He said the trigger for the restart was probably the rise in the franc caused by market expectations last week that the European Central Bank could loosen its own expansive monetary policy.
Such a move would reduce the interest rate gap between Switzerland and the euro zone, making francs more attractive.
“I don’t think there is a specific level the SNB will come into the market, it is more to do with the speed of the appreciation,” Botteron said.
The SNB has been on the sidelines in recent months, dialling back its currency interventions to 2.3 billion francs in 2018 from 48.2 billion francs a year earlier.
But Chairman Thomas Jordan has repeatedly said the SNB can go further with forex purchases and negative interest rates to reduce the rise of the franc, whose strength harms the country’s exporters.
On Monday the SNB declined to comment on the increase in sight deposits that commercial banks hold with the central bank.
The data — for the week to July 24 — covered the period when the franc breached the 1.10 level versus the single currency () to reach its highest level since July 2017.
Markets have priced in a 91% chance the ECB will cut rates at its next meeting in September, heaping pressure on the SNB to follow suit and reduce Swiss interest rates, already among the lowest in the world.
According to Refinitiv data, markets are pricing in a 10 basis point cut by the SNB of its current -0.75% rate by September.
“When the ECB statement was published at 1.45 p.m. last Thursday the euro lost value against the dollar, but not against the franc,” said Thomas Stucki, chief investment officer at St Galler Kantonalbank and the former manager of the SNB’s foreign currency reserves.
Any move by the SNB to buy euros with newly created francs would bolster the single currency.
“It is possible that the SNB is behind this development,” Stucki said.
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