SNB meeting: Let everyone else normalize
XM Group | Jun 16, 2021 11:12AM ET
Return of inflation
The Swiss economy escaped from deflation lately, but don't expect any optimistic signals from the central bank this week. The improvement has been minor so far and most importantly, any positive remarks could fuel more demand for the franc, which the SNB desperately wants to avoid.
A stronger exchange rate makes exports less competitive abroad and pushes down on the prices of imported products, dampening both economic growth and inflationary pressures. As such, the SNB has been actively intervening in the FX market for years now to weaken the franc, which it considers 'highly valued'.
The Bank stopped intervening in the first quarter of the year, as the franc was losing ground on its own thanks to the spike higher in foreign bond yields. However, the second quarter has seen the franc regain some strength, forcing the SNB to resume interventions.
Taking a technical look at euro/franc, if buyers retake control and manage to overcome the 1.0930 zone, the next obstacle may be the latest high near 1.1000.On the downside, initial support to further declines may be found at the 1.0870 low, a violation of which would turn the focus towards the February peak of 1.0845.
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