This morning has been released the Swiss FX reserves for October. The data increased strongly to $741.5 billion from $724.4billion. The reserves hit a clear record high.
The SNB balance sheet continues to expands, meaning that the SNB still believes the CHF is overvalued, or at least that upside risks on the CHF are strong. The FX reserves are coming from money creation in other words the central bank’s debt. It is clear that as long as global monetary policy remains loose, the Swiss FX reserves will continue climbing and increase the SNB exposure to global economic conditions.
The EURCHF is below 1.16 and the EUR remains the main driver. The strong Quantitative easing from the European Central Bank continues at least until September 2018 and this is still posing threat to the Swiss stability. The inflation, that seems to be back in the US, has slowed unexpectedly in Europe in October preventing a bigger change of the ECB monetary policy. A stronger European inflation would definitely help to clear some pressures off the CHF.
By Yann Quelenn