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Pound to Swiss Franc Exchange Rate Edges Higher as Bank Rejects US Currency Manipulator Label,

December 17, 2020 - Written by James Fuller

The Swiss National Bank (SNB) has held interest rates at -0.75%. The bank has reiterated that it will continue to intervene to curb franc appreciation despite being labelled by a currency manipulator by the US Treasury on Wednesday.

The Euro to Swiss franc exchange rate has strengthened marginally to 1.0800 while the dollar-to-Swiss franc remains close to 5-year lows at 0.8835 amid wider US currency weakness.

The Pound to Swiss franc exchange rate is close to 2-week highs just below 1.2000.

Swiss interest rates held at -0.75%

At its latest policy meeting, the National Bank held interest rates at -0.75%, in line with expectations, and there has been no move in rates since 2015.

According to the bank; “The coronavirus pandemic is continuing to have a strong adverse effect on the economy. Against this difficult backdrop, the SNB is maintaining its expansionary monetary policy with a view to stabilising economic activity and price developments.”

There was a small lowering of the 2021 inflation forecast to 0.0% from 0.1% with the 2022 rate held at 0.2%.

The bank expects a GDP contraction of around 3.0% for 2020 with projected growth of 2.5-3.0% for 2021.

SNB ignores US currency manipulation charge, intervention will continue

On Wednesday, the US Treasury released its latest report on currencies and labelled Switzerland as well as Vietnam as currency manipulators. Other countries including Thailand, India and Taiwan were put on the watch list.

The National Bank has intervened on a sustained basis to curb franc gains in global currency markets. The US Treasury considers that this is manipulation to keep the Swiss currency artificially weak. This, in turn, gives Switzerland an unfair competitive advantage in global trade.

“In light of the highly valued Swiss franc, the SNB remains willing to intervene more strongly in the foreign exchange market. In so doing, it takes the overall exchange rate situation into consideration.”

Socgen’s Kit Juckes, commented, "It's kind of been something that has been coming. I don't think it helps the credibility of the concept of currency manipulator in the US designation if you do it in reference to a currency that is wildly overvalued and where it's so obvious.

John Doyle Vice President at Tempus noted the National Bank reaction; "I think the response from the Swiss National Bank is telling. By saying that, they are willing to intervene even more strongly if they feel it necessary."

SEB noted the strong political component; “It's part of the U.S. strategy to ramp up pressure on Biden before he takes over the office of president of the United States. You set the agenda and force him into positions that he will have to get out of somehow."

Edward Moya from Oanda, expects a more restrained stance by the new US Administration;

"No one is surprised that Switzerland was deemed a currency manipulator. There was a strong case for that based on the thresholds for current account surplus and forex purchases. It does not surprise me that the Trump administration was this aggressive, but I expect the next administration to be a little more conservative in its approach, at least constructive in working with countries."
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