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With their foresight and reliability central banks should act as a calming influence in troubled times. These days, however, this seems reversed as central bankers dominated once again the markets. After Janet Yellen, Head of the American Federal Reserve (FED), failed to meet the markets expectations of the long-awaited rate hike last week, it was Mario Draghi, Head of the European Central Bank (ECB ), who moved the markets this week. After the first speculation arose in the market that the ECB could possibly extend its quantitative easing (QE) program, which it initially announced in March, further, Draghi said now that it was too soon to be able to make a decision about it. Subsequently, the euro recovered quickly against most currencies after it had suffered over the past days.
The Swiss National Bank (SNB) and its chief Thomas Jordan seem to be caught between a rock and a hard place. After unpegging the Swiss Franc from the Euro in January, the EUR/CHF stabilized above parity only because of concealed interventions by the SNB.
If the FED further delays the first rate hike because of a slowing global economy and if the ECB sees the need for further expanding the QE program the pressure on the franc will increase again and levels of the EURCHF just above parity will again be within reach. However, the effects of the relative strength of the Swiss franc are already reflecting on the real economy of Switzerland and should be further aggravated in such a scenario. Moreover, China, one of the most important trading partner of Switzerland, is an important factor which needs to be taken into account. In the medium term, Switzerland will not be able to decouple from global trends and should lose attractiveness as a safe haven. We consequently expect the EUR-CHF at levels above 1,20.
It remains to be seen how central bankers will surprise us next time.