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Snap AV: The SNB and Le Pen

Summary:
Credit Suisse ask an interesting question: What lies in store for the Swiss Franc if a President Le Pen were to emerge on May 8th?Volatility in polling alone has to make the question worthwhile, particularly since Switzerland is once again, in the words of CS, feeling a bittersweet pinch from the franc’s reputation as a relative ‘safe haven’ currency.Do remember the SNB let their currency floor go in 2015 and as the FT noted on Tuesday, FX reserves have hit a fresh record high after two months of declines. Chances are, if Le Pen wins and risk spikes, that will only get more… painful? As CS argue:Although recent political surprises like the UK referendum and Trump’s election come to mind, a more appropriate episode for comparison might be fears of Eurozone breakup between 2011-12. At that time, appreciation pressures on the franc were so strong that the SNB resorted to establishing the EURCHF1.20 minimum exchange rate, whilst also intervening through unconventional instruments such as FX swaps. In fact, we believe the situation now is even more complicated than in 2011, because several new ideas appear to be on the SNB’s wish list that were not present in 2011. The SNB now seems to want to simultaneously:1. Achieve its traditional objectives, such as avoiding deflation, disorderly exchange rate moves and CHF overvaluation.2.

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Credit Suisse ask an interesting question: What lies in store for the Swiss Franc...

David Keohane
(Spending some time as FTAV’s Bombay wallah. Noticeably sweatier but not much else has changed.) David studied economics, politics and journalism before joining the FT in 2011 as a Marjorie Deane fellow. He covered emerging markets, equities and currencies before making the jump over to FT Alphaville in May 2012. In between his degree and masters he wandered into the real world of business where he learnt how to manipulate a spreadsheet and organise meetings where nothing gets decided.

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