Central bank still views Swiss franc as overvalued
Speaking in Brussels on Tuesday, Swiss National Bank chairman, Thomas Jordan, announced that the Swiss franc was still significantly overvalued and that the bank would continue to be active in the forex market.
After the SNB’s shock decision to scrap the euro peg, the franc appreciated within minutes and ever since the SNB have been battling to maintain rates at a favourable level. “Although some of the overshooting has since been corrected, our currency is still trading at a significantly overvalued level as we speak,” argued Jordan.
Over the course of this week the GBP has been going from strength to strength against the franc, as illustrated in the graph below.
The strength seen over the course of this week was partially as a result of the good run of data that continues to emerge from the UK. Average earnings are improving at the widest margin versus inflation since 2008, while claimant count changes beat forecasts impressively – and both these releases helped to deter underlying negative concerns.
The Swiss franc strengthened momentarily yesterday after trade balance figures released beat expectations by a further two billion, however this was short lived and we saw the pound continue its run.
Eurozone developments will continue to be watched closely by investors, as any sign of a breakdown in the Greek talks will trigger fresh inflows into the Swiss franc. However a strengthening franc will ensure the SNB remain active in the forex market and any reports of SNB intervention will only aid negative sentiment towards the Swiss currency.
Next week we have a lack of notable data from both the UK and Switzerland, so it may be a case of external influences affecting the rates.
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