SNB's Shift on Franc Weakness Boosts Pound-Franc Exchange Rate
The Swiss National Bank (SNB) has signaled its comfort with a weaker franc, supporting further gains in the pound-to-franc exchange rate.
The SNB's policy rate remains at 0%, and it dropped its June reference to an 'increased willingness' to intervene in the foreign exchange market, which aimed at a strong franc.
SNB Chairman Martin Schlegel stated that the franc has fallen by around 3% on a trade-weighted basis since then, which he attributed to widening interest rate differentials between Switzerland and major currency areas.
Lloyds Bank's FX Strategist Nick Kennedy views this move as 'the most interesting' for the pound-franc exchange rate. He notes that the SNB raised its inflation profile but still sees Consumer Price Index (CPI) at the lower end of its 0-2% target throughout, assuming a policy rate held at zero.
Kennedy believes that the SNB will be content to see the currency continue to depreciate gradually. He also thinks that the CHF's appeal as a funding choice has increased, particularly against the yen, due to yield differentials.