SNB, Riksbank and DNB likely to act to stem any currency gains
Bold action from the European Central Bank on coming Thursday could trigger a domino effect of measures by other central banks that have been fighting against the strength of their respective currencies against the euro, analysts say. While the Swiss National Bank, Sweden's Riksbank and the Danish National Bank are the first ones likely to respond, others including the Bank of Japan and the People's Bank of China will be closely monitoring the currency impact of potential ECB action.
The SNB will meet on March 17, and any ECB measures this week will be key triggers for Swiss policy makers' decision, according to Chris Turner, head of foreign-exchange strategy at ING. The SNB abandoned the 1.20 Swiss franc cap versus the euro on the assumption that ECB quantitative easing would manage to weaken the common currency.
Further policy action from the ECB this week opens up risk that the SNB will also be required to announce a tit-for-tat response, Rabobank senior foreign-exchange strategist Jane Foley says. The franc is likely to respond better to SNB's negative interest rates and threats of intervention in periods of rising risk appetite, Foley adds.
The euro-franc exchange rate at 1.0750 is a key level to trigger SNB intervention, Nordea macro strategist Aurelija Augulyte says. The SNB could intervene in markets, and an extraordinary meeting to announce a rate cut would be possible if upside pressure on the franc becomes too strong. Still, central banks will probably think twice before cutting rates further, given the implications of negative rate policies, Augulyte adds. On the other hand, UBS doesn't think the SNB will respond with another rate cut should the ECB ease further this week, as the euro-franc exchange rate level matters more than the rate differential with the ECB, fixed-income strategist Nishay Patel says.