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Investors Bet on’SwissFhanc’s Strength

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Switzerland has this yearintervened in currency mar-kets the most since 2072, yetthe franc keeps strengthening.That is a trajectory investorsbet has further to go.

The Swiss National Banklast week said it has spent 90billion Swiss francs ($98 bil-lion) in the first half of theyear to keep its cwrency from____________t_ appreciating.(URREI{CIES still, the

franc hasgained 5.7o/o against the dollarthis year and traded Mondayat $1.09 apiece. That is be-cause the dollar has weakened:The WSJ Dollar Index, whichtracks the currency against abasket of others, has declined1.2% in 2O2O.

In recent weeks, speculativeinvestors increased bets thatthe Swiss franc will continueto strengthen against the dol-lar. The crurency continues tobe broadly viewed as a havenasset and tends to rally wheninvestors grow risk-averse.

One reason investors arebetting on appreciation: Thestronger the franc gets againstthe dollar, the less Iikely Swit-zerland will draw criticism orsanctions from the U.S.

President Trump’s corona-virus infection, the Novemberelection and other political un-certainties in the U.S. areweighing on the Trump ad-ministration and could helpshield the Alpine nation fromtariffs and other punitive ac-tions in connection with itscurrency interventions.

‘You’re unlikely to see ag-gressive moves against Swit-zerland at this point in time,”said Peter Kinsell4 global headofforeign exdrange strategy atUnion Bancaire Priv6e. “TheU.S. administration possiblyhas bigger fish to fry.”

In previous years, Mr.Trump frequently decried thatother economieq including theeurozone and China, gainedthe upper hand in trade by

lowering interest rates, whichallows their currencies toweaken. A cheaper currencycan make a nation’s exportsmore competitive. Switzerlandhas historically managed itscurrency, and been put on theU.S. watch list in the past.

Any action by the U.S. Trea-sury Department could proveto be merely symbolic, at leastinitially. Washington is morelikely to consult with the In-ternational Monetary Fund totry to eliminate the unfair ad-vantage the currency mea-sures have given a country, ifit does anything at aII.

But over the longer term,the U.S. could opt to levy tar-iffs against imports of drugs,precious metals, art or an-tiques from Switzerland.

The Treasury uses threecriteria to assess whether acountry manipulates its ex-change rate: active interven-tion in currency markets,

Swiss National Bank’scurrency interventions

First six

200 billion Swiss francs months

trade surpluses with the U.S.,and a iarge country’s current-account surplus, which is abroader measure oftrade thatincludes investment income

Net speculative bets on theSwiss franc against the dollar

Positive values indicatemore bets that the franc

-5,000 witl rise againstthedollar.rrr,

Nov. Jan.2020 Oct.2010 ’15 ‘,20ore:200 billion Swiss frarcs=$218 billionSources: Swiss Nati0nal Bank (interventions); Fadset (net bets)

and other financial flows.Switzerland was added to

the Treasury’s watch list ofcrurency manipulators in Jan-uary after it met the require-

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sibly prove to be a fleeting re-action: The SNB has previouslYtold markets that the U.S.tlreat won-t deter it from cur-rency interventions.

‘1The impact is going to bevery short term,” Mr. Paolinisaid. He expects the dollar toweaken, lending to the franc’sstrength.

the Treasury in Aueust saidVietnam depressed its cur-rency in 2019, providing thefirst test case for a Trump ad-ministration initiative to levYtariffs against countries for al-Ieged currency manipulation.On Friday, the U.S. said itwould launch an investigationinto Vietnam’s actions in thesame process it used to Placetariffs on Chinese goods.

“The SNB’s foreign-ex-change market interventionsare motivated purely by mone-tary policy considerations,”said FaD{o Sonderer, a spokes-pers0n for the SNB. “They are

not armed at conferrfng ao-u”rt”e”t on Switzerland bYundervatuing the franc”‘

ihe strengthening francmakes Switzerland’s imports’

cheaper and exPorts more ex-

;;;;il, weiehine on its infla-tion.

tvtr. Sonderer also notedSwitzerland and the.U’s’ areIimportant economic Part-neri” that are in frequert con-

ifi[ tg;ardinc financial andeconomic matters’

While the U’S’ election may

shield Switzerland from anyffi”ai”t” actions bY the U’S”ii*”v t”*. to inhibit turtherintervention in currencY mar-kets bY the sNB’

‘.With the elections comrnguD. vou don’t want to be seen

a-“iri* anYthing,” said Mr’;;;]iri. tte exPects the sNB*itLtto* its stePs for the rest;iiil Year, and the Swissir”rr. *iu aPPreciate acaitltirr. aoUut “itis a very voiatileana uncertain situation'”*’i”

botd markets, the Yieldon the l0-Year Treasury.iimbea to O’760o/o’ fromO.694o/o FridaY’

rewffi’*ilil*lji SAftrffi’;r,lli.i’.i(P. FtAIJfft$


ments on trade surplus andcurrent-account surplus. Atthe time, its currency inter-vention was less than 2% of itsgross domestic product. Butthe first six months saw theSNB use an amount equivalentto more than 10% of its annual’output

of goods and Swiss data released last

week marks the first time quar-terly figures were disclosed.The central bank historicallyonly released annual data.

Investors expected the release an updated reporton ourency manipulators overthe summer. One could beforthcoming, they said. TheTreasury didn’t respond to arequest for comment.

If the U.S. labeled Switzer-land as a manipulator, thefranc might briefly rallysharply against the dollar andeuro, said Luca Paolini, chiefstrategist at Pictet Asset Man-agement. But t}tat wouid pos-

The filst half of 2O2O saw the SNB3 cunency intervertion equal more than 10% of GDP. The uruefllng of the new tfi]franc note last year.


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