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Cap removal does not really improve the situation for the SNB
On January 15th, 2015, when the SNB decided fully unexpectedly and without prior notice to remove a cap of 1.20 Swiss francs to the euro introduced in 2011 one could realize under what pressure the Swiss National Bank (SNB) is. The interventions in the foreign exchange markets have pushed the foreign currency reserves higher and higher and the SNB seemed no longer able to withstand the market pressure. Since then a lot has been done, but the situation has still not improved for the SNB. Except further hidden interventions in the foreign exchange markets, the SNB seems to have already fired its best shots. A further rate cut seems to be no longer a realistic option in view of the negative effects on the banks and the pension funds.
Developments within the euro zone are a heavy strain
In addition, the euro zone is not able to consistently get rid of the consequences of the financial crisis and forces thereby the ECB to keep on easing its own central bank policy. Which is precisely what poses a threat to the SNB. Should the economic situation within the euro zone not improve the SNB will have great difficulty in keeping the pace set by the ECB with the same intensity.
Foreign currency reserves rise at an unabated pace
Since the removal of the Swiss franc cap the foreign currency reserves have developed with similarly strong intensity as before and have recently reached a record level of 650 billion Swiss francs (for comparison: before the outbreak of the financial crisis in 2008 the foreign currency reserves have been kept at a level below 50 billion Swiss francs). In addition to the economic risks in the euro zone, there are also political risks that may impact the euro next year.
Unofficial cap will be further lowered
In 2016, we could see the SNB lower the unofficial cap even further. Currently, it seems that it has settled at 1.07 EUR/CHF. However, a further appreciation of the Swiss franc in 2017 seems likely and therefore we should experience a further lowering of the cap to initially 1.06 and subsequently to 1.05 EUR/CHF.
The SNB still remains at the mercy of the ECB.
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