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The franc has lost nearly 5 percent against the euro since the
start of July and is trading near its weakest since the Swiss
National Bank (SNB) abruptly scrapped a currency cap in January
2015.
The slide has been welcomed by companies whose profits suffered
after the cap, set at 1.20 per euro, was scrapped and the local
currency settled with gains of around 10 percent over the
following weeks.
"This is very good news for our company and for all exporters,"
said Michael Merkle, chief executive of grinding machine maker
Agathon.
"Let's hope it goes further and is sustainable. We have around
50 percent of our sales in euros, so it helps us a great deal."
Other companies including toilet maker Geberit <GEBN.S> and
dental implant maker Straumann <STMN.S>, which have much of
their costs in Switzerland but a high proportion of sales in
euros, should also benefit, Credit Suisse says.
On Monday, euro-franc <EURCHF=> was trading at 1.1472, down from
1.0942 at the start of July and the strong side of 1.07 in
April.
Circumstantial data indicate the euro rally is not yet over.
The SNB has the some of the lowest interest rates in the world
-- it aims to keep three-month rates between -0.25 and -1.25
percent and charges 0.75 percent on commercial banks' deposits
-- and a commitment to currency interventions to prevent the
franc's rise.
It is expected to keep that policy on hold, while expectations
of tightening from other major central banks are gathering pace.
SNOWBALLING TRADES
Data on Monday showed the SNB's foreign currency reserves grew
to 714.33 billion Swiss francs at the end of July, roughly a
tenth bigger than the economy.
But the SNB, which declined to comment on its monetary policy,
is thought not to be behind the franc's latest decline, as sight
deposit levels -- a proxy for interventions -- have been flat in
recent weeks.
Both the policy divergence with the euro zone and an improving
economic and political situation in Europe have weakened the
franc's allure.
"The G10 banks, including the ECB, are all shifting toward
normalization while... the only central bank that is not going
to tighten monetary policy any time soon and has the firepower
to support an expansive policy is the SNB," said Peter
Rosenstreich, head of strategy at online broker Swissquote.
Once the franc started weakening in July, it triggered a flood
of activity by market players covering 'short' bets against the
euro by buying the single currency, with automated trading
amplifying the effect.
"The franc weakening snowballed very quickly," said Florian
Weber, from J. Safra Sarasin. Once technical resistance at 1.12
francs to the euro was breached, the decline accelerated.
"We are in an area where no resistance can be identified," said
Hans-Peter Reichhuber, an analyst at BayernLB. "The next hard
resistance point would be 1.20, that is the most important
level."
The SNB is expected to keep policy on hold at least until the
European Central Bank cuts back on its own expansive policy and
starts raising interest rates.
"The SNB may be happy that their current monetary policy
approach now works much better, but they hardly have any
incentive to change course in the near term," said Ulrich
Leuchtmann, a strategist at Commerzbank.
"I wouldn't be surprised if they stick to the current policy
stance until the end of 2018 and for the franc to even get a
little weaker in the coming weeks."
(Reporting by John Revill and Angelika Gruber; editing by John
Stonestreet)
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