More Posturing Out Of Europe: Franc Surges After SNB's Bluff Is Called, No Peg Announced, "More Of The Same"
As Zero Hedge was widely predicting (most recently here), there was no announcement of a fixed or floating peg in the CHF (which was obvious from a mile away: the desperate attempts to leak misinformation to the media and make the franc unattractive were enough to only fool various robots), and instead the SNB's now uber-powerless Philipp Hildebrand said that he "aims to expand banks’ sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion." Translation: "we are terrified to do anything more, we can't afford any more balance sheet losses and for all those who called our bluff, you won" - the immediate result is a 300+ pip tumble in the EURCHF. Elsewhere - pervasive disappointment among the sellsiders who actually bought this theater hook, line and sinker: "SNB seems willing to drag feet for now before pulling trigger on FX spot intervention" Valentin Marinov, strategist at Citigroup, writes in note. Ironically the market is now falling for more of the same as it anticipates something to come out of the Swiss government to also discuss measures against the strength of the CHF. However, as Goldman says (note below) hardly anything will come out of it: "After all it is the SNB who decides on the currency regime and today's announcement is, in our view, a clear signal that the SNB first wants to see how the current measures work before they will decide on any additional measures." Prepare for another 11.5 sigma move in the USDCHF as the "priced in" central bank non-intervention unwinds.
Full Statement from the SNB:
Swiss National Bank intensifies measures against strong Swiss franc
The measures taken thus far by the Swiss National Bank (SNB) against the strength of the Swiss franc are having an impact. Nevertheless, the Swiss franc remains massively overvalued. The SNB has therefore decided to expand again significantly the supply of liquidity to the Swiss franc money market. In so doing, it is increasing the downward pressure on money market interest rates with a view to further weakening the Swiss franc exchange rate. With immediate effect, it aims to expand banks’ sight deposits at the SNB further, from CHF 120 billion to CHF 200 billion. In order to achieve this new target level as quickly as possible, it will continue to repurchase outstanding SNB Bills and to employ foreign exchange swaps. Furthermore, the SNB reiterates that it will, if necessary, take further measures against the strength of the Swiss franc.
And Goldman's take
More of the same
The SNB announced this morning to "intensify" its measures against the strong Swiss franc. Given the "massive overvaluation" of the CHF the SNB will increase its supply of liquidity in order to "increase the downward pressure on money market interest rates". More specifically the SNB aims to increase bank reserves of commercial banks at the SNB by another CHF80 billion. Moreover, the SNB will "if necessary, take further measures against the strength of the Swiss franc".
At least for now the SNB sees no need to revert to other options, such as outright FX interventions, to counter the CHF appreciation. By reducing money market rates the SNB hopes to make holding CHF liquidity less attractive. Moreover, the SNB probably also hopes that some of that additional liquidity will find its way into Euro denominated assets.
The Swiss government will probably have a meeting this afternoon - there is no official confirmation yet - to also discuss measures against the strength of the CHF. While there have been speculations that there may be an announcement of some kind of peg against the Euro, we doubt that any specific steps will be announced today. After all it is the SNB who decides on the currency regime and today's announcement is, in our view, a clear signal that the SNB first wants to see how the current measures work before they will decide on any additional measures.
EURCHF Slide and then kneejerk. Expect the downward move to resume with a vengeance.
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