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Swiss floor to hold irrespective of the vote on Gold - HSBC

FXStreet (Barcelona) - David Bloom, Global Head of FX Strategy at HSBC notes that maintaining the EUR/CHF will always be a policy of choice for the SNB irrespective of the ‘Yes’ or ‘No’ vote outcome in the referendum.

Key Quotes

“The referendum on ‘Save our Swiss gold’ will, if passed, have a material impact on the gold market, and may make the operation of Swiss monetary policy more difficult.”

“Given the current assets held on the SNB’s balance sheet, it would be possible increase gold holdings without having to sell EUR.”

“The SNB would still be able to intervene to support EUR-CHF by buying EUR in whatever quantity was required. It could then subsequently recycle some of the purchased EUR into other assets, as it has done during previous bouts of intervention”

“In addition, the SNB could still intervene without limit to defend the EUR-CHF floor if necessary, even if the gold initiative would imply additional costs for such action into the future.”

“If the market sees a close result as showing that many Swiss voters think SNB policy is ‘wrong’ then there could be intensified pressure on the floor as the perceived risk of a change in policy increases. Ironically, this could mean that the SNB buys even more EUR assets to support the floor – exactly the opposite to the wishes of those who proposed the gold initiative”

“Whether we get a ‘yes’ or ‘no’ outcome in the referendum, maintenance of the EUR-CHF is still a policy choice for the SNB, and one we believe they will continue to favour so long as Swiss inflation remains uncomfortably low.”

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