Briefly
- The Swiss Franc could be an attractive haven as the SNB’s first interest rate surged in 15 years.
- Fear about a revivified Eurozone debt debacle might keep bolstering flows into Franc through EUR/CHF rates.
- For now, the Swiss Franc exhibits a bullish outlook.
Swiss Franc Weekly Review
The Swiss Franc emerged as the top-performing currency over the past week, gaining against all its major counterparts. That came as the SNB (Swiss National Bank) surprised market players with the first-rate increase in about 15 years. The banks increased the rates to -0.25% from -0.75%.
The Swiss Franc presented a massive performance against commodities currencies as risk appetite erodes amidst increasing recession fears. AUD/CHF rates plunged by -3.22%, while CAD/CHF rates dropped with oil prices, -3.61% down.
Also, NZD/CHF rates saw a -2.42% drop. Moreover, the widening BOJ and SNB divergences had CHF/JPY on an impressive performance, adding +2.23. It outshined the majors as GBP/CHF rates declined by -2.57%, while EUR/CHF rates lost -2.01%. Moreover, the USD/CHF rates noted a -1.80% slide regardless of the 75bp rate increase by Fed, the highest since 1994.
A Light Swiss Economic Calendar
The SNB’s surprise rate hike saw the economic calendar in a significant light for the Swiss Franc’s future. Meanwhile, the Swiss economic calendar has two events only (Tuesday and Thursday) during the coming week. That leaves the Franc at impulses of broad risk bias, and the news flows around the bourgeoning Eurozone debt disaster.
The Swiss inflationary pressure over the recent month, at +2.9% Y/Y (May), well beyond the bank’s goas of 0 – +2%, offered the Swiss authority bond yields a tailwind. Meanwhile, the government bond yields stand at the highest mark since 2014.
Though still lower than other top economies, the increase in Swiss yields should elevate the Swiss Franc’s appeal compared to haven currencies such as JOY moving forwards.
Also, the yield surge can bolster Franc as concern about the Eurozone debt disaster looms, forcing the ECB to conduct an emergency summit last Wednesday, within a week following the June policy conference.
Lastly, the week ending 24 May had speculators decreasing net-short Franc positions from 15,850 contracts to 6,488 contracts. Moreover, players should expect further net shorts to drop moving forward.