(Bloomberg) -- Traders awaiting the Swiss National Bank’s take on the franc’s full-steam rally in recent months have but one question on their minds: is it time to abandon ship?
Not quite, according to Nordea Bank AB.
“We don’t dare to short the franc at the moment,” said strategist Andreas Steno Larsen. The central bank has so far refrained from intervening in the market to stem franc strength -- which runs counter to the policy goal of price stability -- and that suggests the SNB is unlikely to resort to anything more than “verbal intervention” at this week’s meeting, he said.
At Thursday’s meeting, the Swiss central bank is forecast to maintain its target range for three-month Libor at between minus 0.25 percent and minus 1.25 percent, according to a Bloomberg survey of economists.
The Swiss currency has gained more than 6 percent versus the euro since April, a rally that’s spurred some analysts to revise their forecasts, driven by haven demand amid regional political risks. Yet, data on the SNB’s so-called sight deposits -- which analysts consider an early indicator for intervention -- suggest the monetary authority hasn’t been active in the market, according to Morgan Stanley. The deposits totaled 577 billion francs ($600 billion) in the week to Sept. 14, little changed from the end of 2017.
“Most of the current market positioning is based on the assumption that the SNB won’t allow the franc to strengthen more,” but that’s at odds with the central bank’s ongoing approach of not intervening, Nordea’s Larsen said.
The franc is now stronger than what the central bank had previously defined as “highly valued” but weaker than levels it deemed “significantly overvalued,” according to Larsen. That suggests policy makers may “invent a new wording for the franc” this time, rather than resort to direct intervention, to stop the currency from appreciating beyond 1.12 per euro, he said.
That could fuel speculation that there’s no strong resistance from the SNB to franc strength, leading to more appreciation, he said.
The Swiss currency was around 1.1250 per euro Monday and reached 1.1184 earlier this month, the strongest level since July 2017. Option markets signal that euro-bearish sentiment versus the franc remains strong across tenors.
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