The SNB Is Now Actively Dumping Euros

After the Swiss National Bank was actively gobbling every euro it could find for months on end to punish its own currency, in the process swelling its balance sheet to half the country's GDP, the WSJ's MarketBeat reports that the SNB is now in reverse mode, and has been a steady seller of EUR for the past 10 days. And since the dramatic ascent in the EURUSD is still rather confounding in light of increasing Yen strength, one potential explanation is that this has merely been a coordinated effort to provide the SNB with appropriate EUR selling levels as another quarter of massive FX-related losses would likely be Hillenbrand's last. From MarketBeat: "The Swiss National Bank is once again at the center of the currency markets, with London-based traders at two banks saying the SNB has been dumping some of the euros it hoarded during this year’s aggressive but ill-fated intervention program. London traders said the SNB has been a steady seller of euros against the dollar over the past 10 days, likely limiting the scale of the single currency’s ascent. The central bank declined to comment." We have covered the SNB's dramatic and frequent interventions in the FX markets over the past 6 months, many of these predicated by the hundreds of billions of CHF denominated loans in non-Euro countries, which had the potential to destabilize the Swiss economy, and to force a massive squeeze in the CHF bringing the currency not only to parity with the USD but with the EUR (a topic covered extensively by the WSJ yesterday). For those who may have missed the "logic" of the interventions, and the current unwind, here are some more observations from Marketbeat:

The SNB launched a heavy-duty program of euro buying earlier this year in an effort to hold down the soaring Swiss franc. The bank’s official reserves more than doubled from the end of last year to the end of last month, reaching 226.7 billion Swiss francs by June 30. In May alone, the SNB scooped up the equivalent of almost €60 billion, equal to around 15% of the country’s entire annual economic output.

The bank’s efforts may have limited the franc’s ascent, but the currency still smashed through a series of record highs against the euro, which dipped under 1.31 Swiss francs in early July. It has since bounced back to around 1.38 Swiss francs.

Now, traders say that the central bank is mixing up its foreign-exchange holdings — a typical move for investors and central banks that are overexposed to one particular currency.

The central bank is “not hammering” the euro, one person familiar with the situation said, but it is selling it on a notable scale.

With the EUR gunning for the moon suddenly, market rumors have associate the move either with various stop barriers or options expirations thresholds. Regardless, the sudden spike should provide a good exit point for the likes of the SNB to offload a solid 2-3% its hundreds of billions in EUR holdings.


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