Analysts at BofA Securities have highlighted the Swiss National Bank’s (SNB) recent intervention in the foreign exchange markets, aiming to weaken the Swiss franc (CHF) amid significant market turmoil.
The BofA expects further depreciation of the CHF as the Real Effective Exchange Rate (REER) has largely recovered from this year’s decline, continuing pressure on the SNB to ease monetary conditions.
The SNB’s action, which took place last week, represented the second largest intervention flow of the year. ‘FX intervention continues
support the SNB’s dual monetary policy strategy, combining interest rate changes and currency sales to achieve the inflation target,” BofA analysts said.
During the first half of 2024, strong demand for carry trades appeared unstoppable, with the rankings of the G10 currency markets reflecting this trend. However, by the end of July, the pair had reversed all its gains since the beginning of the year.
The SNB’s response to these sharp and volatile currency movements has been substantial, as evidenced by the recent increase in demand deposits, which marked the second largest increase since April amid rising tensions in the Middle East and the fourth largest since 2023.
The CHF’s recent rally, which recovered most of its losses from earlier in 2024, prompted the SNB’s rate cut decision on June 20. The bank’s analysts suggest that the REER’s performance is likely to influence the SNB’s policy decisions at its upcoming September meeting.
Early this week there has been some reversal in the CHF’s recent gains, and BofA’s analysis suggests a direction that points to further weakening of the CHF against currencies such as the Australian dollar (AUD) and the British pound (GBP).
These currency pairs are seen as clear indicators of possible mean reversal in trading volume. Additionally, BofA points to potential gains in EUR/CHF and pairings as more defensive positions for a weaker CHF.
‘Our final word is to remind readers that the relative fundamental view
between Switzerland and its peers has not changed. Positioning, in our view, has been the key driver making CHF shorts attractive again,” BofA said.
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