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25 Apr 2013
Forex Flash: SNB to raise floor target for EUR/CHF to 1.2500? – UBS
FXstreet.com (Barcelona) - The Swiss franc has weakened sharply this week. Indeed, the EUR/CHF has jumped from levels just above the Swiss National Bank's 'minimum' floor of 1.20 to above 1.23 while USD/CHF has appreciated back towards 0.95 the figure.
According to the UBS Research Team, “There has been speculation that the SNB would raise its floor target to 1.25 for the EUR/CHF. We believe the central bank has no intention of 'fine-tuning' its exchange rate policy given continuing deflation in Switzerland, uncertainty about the Eurozone's debt crisis and the risks that such a move would invite international criticism.” Instead the weakness of the franc may reflect Germany's slowdown. This week's German PMI and IFO business conditions data were all worse than expected.
The franc is a shadow currency for Germany. As a result changes in German economic activity influence Swiss activity too. This is shown by the close fit between German and Swiss PMI data. In addition, Switzerland has similarly strong fiscal and trade positions as Germany does. “Thus the franc acts as a safe haven – just as the Deutsche mark did before the advent of the euro in 1999.” they add.
According to the UBS Research Team, “There has been speculation that the SNB would raise its floor target to 1.25 for the EUR/CHF. We believe the central bank has no intention of 'fine-tuning' its exchange rate policy given continuing deflation in Switzerland, uncertainty about the Eurozone's debt crisis and the risks that such a move would invite international criticism.” Instead the weakness of the franc may reflect Germany's slowdown. This week's German PMI and IFO business conditions data were all worse than expected.
The franc is a shadow currency for Germany. As a result changes in German economic activity influence Swiss activity too. This is shown by the close fit between German and Swiss PMI data. In addition, Switzerland has similarly strong fiscal and trade positions as Germany does. “Thus the franc acts as a safe haven – just as the Deutsche mark did before the advent of the euro in 1999.” they add.