Morning Brief – CHF

CHF
 

Despite immense currency market intervention, the Swiss Franc has failed to depreciate meaningfully. The Swiss National Bank has conducted forex operations totalling tens of billions of Francs with little impact on the currency’s value. As a currency with safe-haven status, it finds itself the beneficiary of defensive demand during times of uncertainty and risk. Today’s world characterised of rising European infection rates, no Brexit deal with 2.5 months to go until the end of the transition period and a US presidential election provide an ideal backdrop for Franc strength.

Yesterday saw the rumour mill churn with early reports that the UK would not walk out from negotiations despite its prior threats hitting screens at 10AM yesterday morning. The incumbent belief that these open threats made by number 10 were never credible and merely political brinkmanship caused the sharp rally to fade quickly. Having gained 0.8 cents versus the Dollar in just 60 seconds, the boost to Sterling faded to around 0.25 cents within the next quarter of an hour. The news did however provide a positive backdrop to the Pound and subsequent reports of progress from EU sources and official confirmation that talks would continue pushed Sterling to just shy of 1-month highs. The shift in the Pound’s value was a definite adjustment to expectations surrounding Brexit negotiations ahead of the important EU summit that commences today. Despite the receding risk of Brexit negotiations the Swiss Franc continued to record strong gains yesterday against both the Euro and the US Dollar.

The Franc often acts as a barometer of risk in Europe and the warning from Germany’s Chancellor Angela Merkel and French President Emmanuel Macron regarding respective coronavirus outbreaks outweighed any positive impact upon European risk that Brexit negotiations were producing. President Macron introduced a new policy of 9pm-6am curfew for Paris and eight other big French cities effective from Saturday. Despite stopping short of another full national lockdown, the additional measures coincided with rising infection rates across much of the northern hemisphere. Germany saw new cases hit a record high whilst US states Ohio and Wisconsin recorded similar landmark rises. Northern cities in the United Kingdom were also struggling with the outbreak amid warnings of a scarcity of intensive care facilities to combat the outbreak. Taken together the situation appears to verify concerns about seasonal impacts of the novel coronavirus.

Despite ongoing intervention the deteriorating backdrop of Europe continues to see the Swiss Franc well bid. The risks of a Brexit breakthrough and potential for near-term vaccine approval will remain the primary risks to the Franc’s lofty valuations.

Discussion and Analysis by Charles Porter

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