A flare-up of the eurozone debt crisis and faltering global growth are piling pressure on the Swiss National Bank to take further steps to try to stop the Swiss franc from heading back towards parity with the euro. After the SNB cut its interest rate target to zero on August 3 and began broadening the amount of cash in the market, the franc has gyrated.
It touched a lifetime peak near parity with the euro on August 9 but then dropped 18 percent to a seven-week low. Yet with worries about the health of the global economy intensifying, the franc has gained 7 percent this week.
"It's clear that if the franc is on a clear course of appreciation towards parity the SNB will want to take further steps," Credit Suisse economist Fabian Heller said. Measures under consideration may include expanding sight deposits - accounts the central bank uses to provide the banking system with cash - or imposing a charge on them. Intervening in the spot market is also a possibility.
Investors, including hedge funds and speculators, are keen to maintain their bullish bets on the Swiss franc, given signs global growth is sputtering and the US Federal Reserve may initiate further bond purchases to loosen policy.
"In coming weeks the external developments should be the driver, which may necessitate additional measures from the SNB," said UniCredit economist Alexander Koch.
Were the franc to threaten to touch parity with the euro again, the SNB has ample room to act: inflation remains far below the SNB's 2-percent price stability threshold and political backing for the central bank has solidified, possibly permitting it to resume spot market interventions.
After an annual meeting of the country's top politicians, the government issued a statement on Friday declaring that all federal parties stood behind the SNB's actions and asserting that the central bank was alone responsible for currency policy.
Such political solidarity behind the SNB is in contrast to the situation earlier this year when interventions were a political non-starter after the SNB ran up a huge loss in 2010 trying to keep a lid on the franc.
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