The latest reserves data from the Swiss National Bank (SNB) show a further increase in its FX holdings, the majority of which came about as a result of the continued efforts to defend the 1.20 level on EUR/CHF. The SNB’s pile of foreign currency holdings has now increased six-fold since the start of the financial crisis. More than half of the increase came about from the SNB’s first round of intervention back in 2009/10, when it was attempting to limit the franc’s increase vs. the EUR during the early part of the credit crisis.
More recently, as the SNB has been defending a defined level on EUR/CHF, the increase has been more marked, especially over the past three of months with reserves increasing from CHF 237bln to CHF 364.9bln. From the beginning, the SNB has maintained that it will do whatever it takes to defend the 1.20 level, not least because it still views the CHF as over-valued. The latest available data (to Q1 this year) shows the SNB holding around 50% of its reserves in euros and we’ll have to wait a few more weeks to see how that has changed. But all the signs are that the SNB has learnt from its 2009-10 experience (when EUR holdings pushed over 70%) and is swapping into other currencies to keep its portfolio more balanced. This was evident in the early bout of intervention when the CHF cap was first introduced and will likely be so again when the next SNB data is released. The impact of the SNB’s continued intervention is being felt far and wide, putting upward pressures on other currencies (such as the dollar and yen) upwards as a result.