What to Make of the Swiss Franc

The SNB's apparent absence had emboldened the market, which has driven the euro to record lows against the Swiss franc. The SNB had been clear. It was still closely monitoring the Swiss franc even though it acknowledged that at some point its QE would end. The Swiss reported a very strong PMI earlier today and the market was returning to its recent cash register of buying Swiss francs.

There is little doubt that the SNB intervened today, even if confirmation is not forthcoming. What is at issue are two questions: size (which may reflect commitment) and whether it sticks.

It is not clear whether the SNB intervened on dollar-Swiss as well as euro-Swiss. The latter is nearly as certain as there things get. The former is possible, though not nearly as certain. The size of the operation does not have to be very large. Market conditions were thin and the short-term speculative market was leaning the wrong way.

The euro rallied from CHF1.4145 to CHF1.4411. It has backed off as the intervention round appears to have ended. It is possible that it intervenes outside of European hours but is unlikely.

Will the intervention have lasting impact? Color us skeptical. The intervention did not work so well during the heyday of the QE. The market suspects this is the latter stages of the QE and so it will not be there for long. In addition, the debt and deficit issues in Europe, one of the factors that make the Swiss franc an interesting alternative, do not appear resolved.

This is to say that as often is the case, the intervention will likely be tantamount to a transfer from the central bank coffers to the market. This bounce in the euro will give those players so inclined a better level to sell it against the Swiss franc