Swiss Franc Sold After Jordan Hints SNB Shift Underway

Above: SNB President Thomas Jordan speaks in Davos.

The head of the Swiss National Bank signalled that the recent strength in the Franc might be reaching uncomfortable levels, hinting at impending policy shifts.

The SNB has engineered a strong Franc in its battle with inflation, judging that the currency provides a buffer against imported inflation.

But SNB President Thomas Jordan said recent strength could prompt a rethink in its currency policy:

"For quite a long time we had mainly a nominal appreciation — that was very helpful, because that shielded us from the inflation pressure from abroad," Jordan said. "In the last couple of weeks of last year, we saw real appreciation. That makes the situation for some of our firms more difficult."

The Franc is one of the G10 currency complex's worst-performing currencies in light of the comments.

Jordan says the SNB will take recent strength into account at the next policy meeting on March 21.

"Jordan said that strength in the Swiss franc was having a material impact on the Swiss inflation outlook - i.e. depressing it. This can be seen with the sharp rise in the real trade-weighted Swiss franc. In effect, while the ECB might be pushing back against easing expectations, the SNB is pushing in favour of those easing expectations given the franc is too strong," says Chris Turner, head of FX research at ING.

"We think EUR/CHF can trade back up to the 0.96 area over the next three months as ECB easing expectations are further reined in," he adds.

At the latest December meeting, the SNB said pursuing CHF strength was no longer a priority and that the risk of further currency market intervention was bidirectional.

Analysts at KBC Markets say there is now a heightened possibility that the SNB will lower its inflation projections in March owing to the recent appreciation in the Franc.

"The big difference is now that the Swiss franc became stronger, especially in the last week of last year,” he told Bloomberg Television in Davos. "This already had some impact — the inflation outlook was slower."

"The SNB may pivot further towards rate cuts. A first full rate cut is priced in for June but odds for a March move rose after Jordan’s speech. The Swiss franc loses ground as a result," says KBC Markets.

The Pound to Franc exchange rate is having its strongest day since November, having advanced 0.70% to 1.0967. The Euro to Franc is higher by 0.45% at 0.9412.