USD/CHF: Forex Traders Changing Trends
In many forex trading circles, the USD/CHF is typically thought of as a safe haven asset. In trading terms, the Swiss Franc is enjoying a prolonged stretch of growth but we are already starting to see indications that these trends are ready to reverse.
Currently, the currency is at its strongest level in 18 months (excluding its Brexit reaction). Right now a major question for the Swiss National Bank (SNB) is whether they will intervene to keep the currency at tolerable levels. On a more substantial rally in 2015, the SNB decided to remove a currency ceiling and further policy indicators might now be on the wake.
Although that rally was much larger, the question must still be asked if the Franc is approaching levels where there may be intervention. From time to time recently, the SNB has taken remedial measures in FX markets, but so far there has been no reaction to these gains.
One potential reason for the lack of action by the SNB may be what the research firm Capital Economics suggested in the Financial Times. They reasoned the new US administration has encouraged countries with larger economies to let their currencies be free rather than micromanagement. Another reason for the lack of action may be the recent lack of deflationary concerns, which can result in little need to affect import prices via currency manipulation (FT).
Furthermore, since the November US election the Franc has moved very little compared to the dollar which would warrant no action on the part of the SNB.
In slightly different news, the SNB has increased their US stock holdings to new record levels. In the fourth quarter their US stock holdings went up 1.6%, bringing the total to a record $63.4 billion at the end of the year. Their largest holdings include; Apple, Microsoft, Exxon Mobil, Johnson & Johnson, AT&T, Amazon, GE, Facebook, Verizon, and Proctor & Gamble.
Swiss Business Minister Schneider-Ammann sounded confident on current SNB policies for 2017. He said, “I have great confidence in the SNB and its policies… The SNB is not infallible, but it is independent and is aware of its responsibilities…It operates with a great deal of sensitivity and skill.” That being said, he did express a desire for the exchange rate with the Euro to be 1.15 vs. Euro.”
Currently the Franc trades at 1.0721. He said this change would be most welcome, but did not comment on policy that might bring this change forward.