Franc heading for a 2% monthly decline means SNB ‘sleeps easier’
April 24 2019 12:40 AM
A pedestrian walks through the square outside the headquarters of the Swiss National Bank in Bern. The Swiss central bank has been pursuing a weaker currency to stoke inflation that is still holding below 1% even after years of negative interest rates.

Bloomberg /London

The franc is headed for its worst month in almost two years, bringing relief to Swiss policymakers seeking a weaker currency in their quest to revive inflation.
The currency has lost about 2.5% of its value against the euro this month, a depreciation not matched since July 2017. The drop is spurring a re-think among some analysts, who are looking to revise their currency forecasts given the collapse in market volatility that has failed to boost demand for haven currencies.
“The negativity centred on the global economy is a little bit overdone,” which is rubbing off on the franc, said Jeremy Stretch, the head of Group-of-10 currency strategy at Canadian Imperial Bank of Commerce. “The SNB will probably be able to sleep a little easier over the course of the next few months than perhaps they were doing so at the end of the first quarter.”
Options traders are also increasingly bearish on the franc, with one-year risk reversals against the euro turning the most pessimistic since May. The Swiss National Bank has been pursuing a weaker currency to stoke inflation that is still holding below 1% even after years of negative interest rates.
The franc touched 1.1445 per euro yesterday, the weakest level since November 8. The currency’s decline means it is already trading weaker than the 1.1300 median forecast by analysts in a Bloomberg survey for the end of the second quarter.
While the pace of the currency’s recent decline might lose some steam, the weaker trajectory will likely remain intact, said CIBC’s Stretch, who is looking to revise his forecast for the pair. He predicts the franc will weaken toward 1.15 per euro over the course of the next six months, before reaching 1.16 next year.
FX Macro Scorecard turns overall bearish franc for the first time since January 2018. Not only is the franc being hit by declining investor demand for havens amid easing geopolitical risks, but recent better-than-forecast Chinese data has boosted optimism that euro-area manufacturing could receive a fillip from overseas sales, supporting the euro, according to Credit Agricole CIB. “Should the export-sensitive manufacturing sector rebound in tandem with better risk-appetite, as we expect, the euro is likely to benefit from both a better risk-asset and trade-related capital flow situation,” said Manuel Oliveri, a currency strategist at Credit Agricole. 
He predicts the franc will weaken to 1.1950 per euro next year.

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