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Spot the trend.

With the reliability of a finely-tuned watch, the latest release of foreign-currency reserves held at the Swiss National Bank has shown yet another record, in a sign the central bank continues to swim against the tide.

Reserves swelled to SFr683.2bn ($SFr679.3bn) in March, up by nearly SFr15bn on the previous month.

Though the SNB famously dropped its hard upper limit on the franc two years ago, it continues to try and manage the currency’s ascent, buying foreign currencies, chiefly euros, whenever it sees fit. It often stresses its view that the franc is overvalued.

The euro now trades at SFr1.07. Deutsche Bank thinks the Swiss currency will climb much further from here, taking that rate to parity.

Among the reasons, it says the Swiss authorities may feel some pressure from the US:

The US Treasury looms large, as it is due to release its latest report on the FX policies of US trading partners sometime this month. As argued elsewhere, Switzerland is already closest to meeting all three criteria of currency manipulation. Its current account surplus runs well above 3% of GDP, and the SNB has intervened well in excess of 2% over the past year. In the past, the Treasury acknowledged the constraints on domestic asset purchases given the limits of the Swiss bond market; but such subtleties could fall by the wayside under the Trump administration. Free trade with the US is too important for Switzerland to be risked by continued FX intervention.

In addition, inflation is picking up, and the German bank disputes the idea that the franc is overvalued.

A similar, if much smaller situation has been seen in the Czech Republic. It abandoned the hard upper limit on its currency yesterday.

Copyright The Financial Times Limited 2017. All rights reserved.
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