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SNB's Jordan admits that EUR/CHF floor will not be raised
For the first time the chairman of the Swiss National Bank Jordan has admitted that the EUR/CHF floor of 1.20 will not be raised. In an interview with the Swiss Sonntagszeitung, here also cited by Bloomberg, he said:

"We can not arbitrarily manipulate our currency. In an even worse crisis situation this would be disastrous and counterproductive. The minimum price must be legitimized. The current minimum rate is realistic and has helped the Swiss economy."

This is a further weakening in the language of the central bank. Jordan's words sound like a response to the accusations of a leading Swiss exporters, the CEO of Swatch, Hayek, in the same newspaper who claimed that a hike in the floor would have been easy recently for the SNB and that the SNB was successful in scaring the markets. 

For months the SNB continued to vow that they might take further measures to weaken the franc, even if wording changed from the "massively overvalued franc" in August 2011 over "significantly overvalued franc" in January 2012 to "overvalued franc" in April.

Jordan confirmed reports that safety flows are again directed into the Swiss franc. But Jordan continued to vow that the floor will be defended at any time. In case of a Greek exit, the central bank, might introduce capital controls. For us, this is just a measure to hold the EUR/CHF above 1.20, but by no means a measure to hike the floor. 

The SNB had managed to reduce money supply (measured by deposits at the SNB by local banks and other sight deposits; deposits by the Swiss confederation and bank notes are excluded from this number) by 35 bil. francs (but only 17% of their previous purchases) between September 2011 and May 11th 2012, whereas it increased money supply by nearly 205 bln. CHF between March and September 2011. 

In the week of May 18th the SNB had to buy Forex reserves of around 3.7 bln. francs, giving away more than 10% of the previous 35 bln. reduction of money supply. Maybe it is the SNB that is scared of the markets now....

The views expressed are our own. Follow us on Twitter.
For anybody interested in more details on the Swiss Franc see our February paper
George Dorgan, Fixed Income and Global Macro Portfolio Manager, Switzerland, formerly UBS analyst



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