Swiss Franc Stealing the Show

In a session primarily marked by 1) talk of fissure in Europe over IMF aid for Greece,and 2) speculation of a Fed discount rate, the Swiss franc is threatening to steal the show in the otherwise quiet NY afternoon.

The Swiss franc is posting dramatic gains, ostensibly on the back of SNB comments. New board member Jean Pierre Danthine is quoted on the news wires seemingly trying to prepare the market that eventually rates will have to rise and the exchange rate will be determined by the market.

The market is responding as if he is signaling a shift in monetary policy, even though on March 11 the SNB met, kept rates on hold, and seemed opposed to Swiss franc appreciation.

The euro is trading below CHF1.44. Recall the best the SNB ever managed to do was immediately following their QE announcement, managed to get the euro up to almost CHF1.5450.

It does stand to reason that the SNB could very well tighten before the ECB, but the move is not imminent. The Bloomberg consensus is for a Q3 hike and if anything, the risk is the consensus is early not late.

The strength of the Swiss franc appears to lending some support to the other major currencies. A strong Swiss franc, if it were to persist, could have some negative implications for countries in eastern and central Europe that have mortgages or loans denominated in Swiss francs. While the Swiss franc is often thinly traded in the North American afternoon, the thinness may be exaggerating the price action.