The Swiss deposits data release continues to outpace expectations. They are now reaching almost 580 billion CHF (578.2b vs 577.4b expected). The main reason for this is that the SNB is not ready to stop its ultra-loose monetary policy as President Thomas Jordan said and this drives strong upside pressures on the CHF. The EURCHF is standing around 1.0850 and we do not see how, at least in the medium-term, the pair could hold consistently above 1.10.
The SNB's monetary policy depends widely on its giant neighbour, the Eurozone, and while financial markets were expecting Mario Draghi to hint a few weeks ago at the ECB meeting about a further normalisation, this has not happened yet. As a result, intervention to defend the CHF on the FX market will continue for the SNB as long as there is no normalisation from the ECB.
We also note that there are economic uncertainties in Europe and we believe that it should prevent the ECB to normalise its interest rates. Santander acquired Banco Popular in Spain and in Italy, Intesa San Paolo has been forced to acquire Banco Popolare di Vicenza and Veneto Banca. The Italian state will likely engage up to 17 billion in this operation. It is then not the exact moment for the ECB to raise rates (charge of the debt would become too massive at this point). Therefore CHF overvaluation will continue and we continue to be bullish on the Helvetic currency.
By Yann Quelenn