The Swiss National Bank (SNB) has confirmed its intervention in the foreign exchange market with the express intention of weakening the Swiss franc. This move comes as the SNB grows increasingly concerned about the negative impact of the strong franc on the Swiss economy.

Reasons for Intervention

The SNB views the strength of the franc as a significant risk to Switzerland’s economic outlook. The primary concerns are:

• Export Competitiveness: A strong franc makes Swiss exports more expensive, potentially harming businesses that rely on international sales.
• Deflationary Pressures: A strong franc can lead to lower import prices, which could contribute to deflation, a sustained decrease in the general price level.

Methods of Intervention

While the SNB has not disclosed the exact mechanisms of its intervention, it is generally understood that the central bank is selling francs and buying foreign currencies, such as euros and US dollars. This action increases the supply of francs in the market, thereby putting downward pressure on its value.

Market Reaction

The SNB’s announcement has already had a noticeable effect on the foreign exchange market, with the franc weakening against the euro and the dollar. However, it remains to be seen whether the intervention will have a lasting impact, as the fundamental factors driving the franc’s strength, such as Switzerland’s safe-haven status, remain in place.

Future Outlook

The SNB has signaled its readiness to continue intervening in the foreign exchange market as needed. The central bank will closely monitor the economic situation and adjust its policy accordingly. The effectiveness of these interventions will be a key factor in determining Switzerland’s economic performance in the coming months.