Barclays on the Swiss franc, they are expecting the Swiss National Bank to intervene, and more
This is from eFX
Developments since the summer have led Swiss data to improve
somewhat, while deeply negative nominal Swiss interest rates are
fuelling modest CHF depreciation from levels of extreme overvaluation,
notes Barclays Capital.
"CHF depreciation, albeit at a slower-than-expected pace, has taken
the REER back to its pre-summer levels, when it faced strong inflows to
'Grexit' risks, thus alleviating some of the pressure from the SNB.
Recent SNB inactivity is likely to be challenged in the
coming quarters, as we expect the ECB to cut its deposit rate in
December, putting significant downward pressure on EURCHF. We expect an
immediate response from the SNB, in the form of aggressive FX
intervention and removing all exemptions of domestic banks on sight
deposits, in our view," Barclays projects.
"Our estimates show that an increasing share of sight deposits at the
SNB has been exposed to negative rates, and as the non-exempt share of
their assets has grown, banks will extend negative rates to their
clients.
Our expectation for the SNB to use its nuclear option has
increased following the introduction of negative rates for small
individual current accounts, charging -0.125% on amounts up to CHF100K
and -0.75% on amounts above CHF100K by a small Swiss bank, Swiss
Alternative Bank Schweiz (ABS). The move highlights the
pressure SNB policies are imposing on smaller banks, putting them at a
disadvantage relative to their larger, multinational competitors and
possibly exposing them to deposit flight if the larger banks do not
follow suit," Barclays argues.
"We expect a broad-based shift to negative rates on retail deposits
to lead to substantial CHF selling, raising jump risks for EURCHF. We forecast EURCHF to appreciate to 1.14 by yearend before resuming its steady uptrend towards 1.18 by Q4 16.
Yet option prices continue to understate this event risk, assigning
less than a 3% chance to a 2 standard deviation move over the next three
months," Barclays projects.
