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- Swiss Franc is being pressured upward signaling that the SNB may let it float higher
Swiss Franc is being pressured upward signaling that the SNB may let it float higher
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Loading...The local safe-haven for Europe is Switzerland. Money has been flowing into Switzerland at large rates ever since the Dot Com economic collapse And the 2008 financial crisis.. Now, with all of the political turmoil in Europe once, the Swiss Franc is seeing signs of increasing sharply. The Swiss National Bank's reserves have been spiking higher. The Swiss are feeling the pressure and although they have been defending their currency, my expectation is that they will cave to the massive pressure that has been building up; Swiss franc is going higher.
A little primer on reserves. If you are a central bank and your currency is too cheap, and falling more, you sell the USD versus the currency in the hope to push the currency higher. This is done with the reserves the central bank would have in store. You are spending your reserves to pay to sell the USD and hoping that the currency will appreciate. Your reserves decline.
If, on the other hand, your currency is too expensive you do the opposite. You would buy USD selling your currency in the hopes that, and, in the case of the Swiss franc, the USDCHF would go higher (weakening the CHF). This act adds to your reserves.
Got that? Good. Now here is what the Swiss National Bank's reserves are looking like with two charts, a micro view of the most recent activity and the macro view since 2000:
You can see the spike up in the reserves. This would be the SNB stepping in to push their currency lower, something they have been doing for some time. Ultimately, this means that if the SNB were to ever let off the gas on these activities, CHF would shoot up like a rocket. We have already seen this just two years ago.
The SNB pushed for a hard-lined range that their currency would stay in. The pressure was too much and they announced they would no longer Defend that line. EURCHF shot up a cool 23 big figures in one day, levels still recovered from yet.
Here are the most recent charts showing the monthly for USDCHF, EURCHF, GBPCHF, respectively:
The fact that the ECB has been pushing through QE, and that they continue to do even more, is really pushing down EURCHF. The fact that France has been iffy in their elections with a far right-winger looking like a potential new president is spooking investors and investors are sending money from Europe to the tiny mountain nation.
As for Great Britain? Their swan dive into a shallow bucket of water has made for very interesting investment opportunities. While I feel certain that Great Britain will do well coming out of Brexit, I feel as if this could turn into a roller coaster ride.
The moves in the currency are extreme when you look at the starting point from 2008. The amounts of money that pushed through the system during the financial crisis must have been extraordinary
Eventually, however, the European economy will turn for the better. There has been strong signs that is starting to happen. That should bring capital out of Switzerland once there is investment opportunity that makes sense. Also, in the United States, interest rates are expected to move higher and maybe capital would flow out of Switzerland and into the U.S. Treasury market. However, that is dependent upon the administration pulling together so very tricky legislation, which I find dubious.
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