World News

SNB scaled back FX intervention as coronavirus fears ebbed, data suggest

By John Revill

ZURICH (Reuters) – The Swiss National Bank remains active in the currency markets to check the appreciation of the safe-haven Swiss franc, albeit less than in previous weeks as coronavirus fears give way to broader market optimism, data on Monday indicated.

Total sight deposits, which include other deposits on sight in Swiss francs, rose to 637.204 billion Swiss francs ($658.47 billion) from 634.115 billion francs in the previous week.

The 3 billion franc increase followed rises of nearly 7 billion in each of the two previous weeks and 11.6 billion francs at the end of March.

“Sight deposits show that the SNB is intervening less strongly than before,” said Karsten Junius, an economist at J.Safra Sarasin.

“I guess this is the result of the general slight risk-on mode. Safe havens seem to be less in demand and so there is also less demand for the franc.”

The MSCI World Index <dMIWO00000PUS> gained 3.1% last week as stock markets recovered some of losses from the novel coronavirus outbreak and countries started to relax their lockdowns.

The level of sight deposits, money that commercial banks park with the central bank overnight, can indicate currency market interventions. The central bank declined comment on Monday.

The SNB has been particularly active during the coronavirus outbreak, selling francs and buying foreign currencies to weaken the value of the franc, which is sought by investors in times of market uncertainty.

The latest data — which covers an average of sight deposits from Friday, April 10 to Thursday, April 16 — did not fully reflect SNB activity at the end of last week when the franc rose to 1.0506 versus the euro <EURCHF=>, its highest valuation since July 2015.

The SNB is trying to slow the appreciation of the franc, whose strength hurts Switzerland’s export-orientated economy, but the central bank does have not a fixed floor for the euro exchange rate, said UBS economist Alessandro Bee.

The euro-Swiss franc exchange rate could go below 1.05 in the coming weeks, he said, which could prompt increased interventions. On Monday, the exchange rate was 1.0515 francs to the euro. <EURCHF=>

“I could imagine that 1.05 is an important threshold for the SNB and that they are willing to spend more to defend it,” said Bee.

“This does not mean that they will defend it at all costs but they could resist a bit longer to the appreciation pressure, because the threshold is psychologically important.”

(Reporting by John Revill; Editing by Michael Shields)