10 Jun 2015
CHF: Return of 'safe-haven' inflows - Deutsche Bank
FXStreet (Bali) - Oliver Harvey, Macro strategist at Deutsche Bank, notes the return of the 'safe-haven' inflows in the Swiss Franc.
Key Quotes
"We previously argued that foreign inflows were not the cause of the break of the EUR/CHF floor in January, confirmed by the Q4 balance of payments which showed large-scale Swiss repatriations of foreign assets generated franc strength. There is increasing evidence, however, that safe-haven flows are now returning to Switzerland."
"This confirms our worry over shorting the franc prior to resolution in Athens. A disorderly outcome would see inflows accelerate sharply, not just from Greek deposit flight but also as investors responded to a general rise in Eurozone risk premia. Having abandoned the floor earlier in the year, the SNB would have limited credibility in fighting them."
"FX reserves have returned to January levels, so balance sheet risks, cited by SNB policymakers as making discontinuation of the currency policy inevitable, are the same as then. It’s worth pointing out that sight deposits show the central bank has not engaged with recent moves lower in EUR/CHF. Further cuts to the deposit rate, or a lowering of the cap over which sight deposits are charged negative rates, also seem unlikely."
"Much of the Governing Board’s recent rhetoric has defended the current policy from domestic asset managers already squeezed for yield. One alternative might be to cut the rate for foreign banks (not enjoying the cap) even further."
Key Quotes
"We previously argued that foreign inflows were not the cause of the break of the EUR/CHF floor in January, confirmed by the Q4 balance of payments which showed large-scale Swiss repatriations of foreign assets generated franc strength. There is increasing evidence, however, that safe-haven flows are now returning to Switzerland."
"This confirms our worry over shorting the franc prior to resolution in Athens. A disorderly outcome would see inflows accelerate sharply, not just from Greek deposit flight but also as investors responded to a general rise in Eurozone risk premia. Having abandoned the floor earlier in the year, the SNB would have limited credibility in fighting them."
"FX reserves have returned to January levels, so balance sheet risks, cited by SNB policymakers as making discontinuation of the currency policy inevitable, are the same as then. It’s worth pointing out that sight deposits show the central bank has not engaged with recent moves lower in EUR/CHF. Further cuts to the deposit rate, or a lowering of the cap over which sight deposits are charged negative rates, also seem unlikely."
"Much of the Governing Board’s recent rhetoric has defended the current policy from domestic asset managers already squeezed for yield. One alternative might be to cut the rate for foreign banks (not enjoying the cap) even further."