Brace Oneself As Market Intervention By The Swiss National Bank Is Coming

Swiss Franc banknotes sit in the office of a bank in this arranged photograph in Zurich, Switzerland, on Friday, Nov. 20, 2015. The franc is still too strong and the economy not yet back to full health, Swiss National Bank Governing Board member© 2015 BLOOMBERG FINANCE LP

Sight deposits, which are also known as call deposits, are deposits that can be withdrawn from a bank either without notice, or after a very short notice period. As a customer, i.e. the depositor, one can withdraw all the money making up your sight deposits whenever you choose.

Ordinarily, sight deposits are made up of assets stored in transactional deposit accounts, such as private accounts (checking accounts) or business accounts.

They differ from “Term Deposits” that carry a longer notice periods in that sight deposits are primarily used as a means of making payment as creditors fall due, rather than as savings vehicles. Thus, it follows the level of interest earned on sight deposits is lower than that earned on deposits held in savings accounts, medium term notes, and fixed deposits.

Sight deposits at the Swiss National Bank (SNB, the central bank of Switzerland) increased by CHF 2.77 billion ($2.84 billion) in the week to August 9. This would suggest that the SNB is preparing for intervention in foreign exchange markets to rein in the Swiss Franc which as a safe-haven currency has risen by 2.78% against the U.S. Dollar since the start of August.

We can take sight deposits at the central bank have risen by CHF 1.60 billion ($1.64 billion) in the week ending August 2 and by CHF 1.7 billion ($1.72 billion) the week before. This make it the largest rise in sight deposits since mid-April 2017.

On the foreign exchange market, the USDCHF pair held on to its weaker tone through the European morning and into the early North American session on Monday, August 12. The U.S. Dollar side of the pair has continued with its struggle to register any meaningful recovery and is still trading with a negative bias for the third consecutive session. This implies it is within the striking distance of multi-week low set at 0.9693 established on August 7.

The Swiss France has also made a gain of 1.13% against the Euro during August.

The SNB declined to comment on the rise in sight deposits however, it is clear that the SNB are ready to act as their currency is being driven by the escalations in the Chinese-American trade war  and the risk that the U.K. is heading toward a no-deal Brexit on October 31.

The word is that the SNB recent held a special meeting over monetary policy and consider the Franc as highly valued. That must be taken as a code that the bank will be on high alert to slow a further appreciation of the Franc against both the Dollar and Euro.

In my view, with major central banks starting to ease monetary policy further and potentially see their currencies weaken the SNB will eventually be forced to act sooner rather than later and the smart money would say we at that threshold now.

Among the arsenal of potential options for the SNB is to cut policy rates further into negative territory from the current level of -0.75% that was established in January 2015. Alternatively, they could look at interest rate tiering.

However, the easiest option, albeit the crudest is to simply intervene to directly push down the Franc.

The SNB next meets on September 19, however, other major central banks may signal the next intentions before that, so it certainly racks up the pressure on the SNB to act in a rapid and decisive manner. The good bankers of Bern are realising that being a safe haven is not all its cracked up to be.

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