“Don’t mess with the Swiss National Bank,” says Ulrich Leuchtmann of Commerzbank. Currency markets were taken by surprise last week when the SNB intervened aggressively, selling Swiss francs against the euro; the franc fell by over 2% in a few minutes.
Having a currency considered a safe haven is hampering Switzerland’s attempt to temper deflation and bolster the economy. Having now intervened twice this year when the euro-franc rate approached CHF1.50, the SNB has drawn a line in the sand – 1.50 is set “to become the floor for the franc” for the rest of the year, says Mansoor Mohiuddin of UBS.
Yet history shows that setting a target simply gives currency speculators something to aim at. “The danger is that traders will test the bank’s resolve” and drive the franc below the boundary, says Standard Bank’s Steve Barrow.