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Swiss Franc Mixed on Bearish Sentiment, Loose Monetary Policy

August 28, 2019 at 19:28 by Andrew Moran

Swiss coins on franc notesThe Swiss franc is mixed midweek as the latest survey of investors suggested a bearish sentiment. But the poll of investors might change in the coming weeks as the central bank pledged a looser monetary policy, suggesting that it will continue to stimulate the economy and financial markets. Could this help the country counter the demand for the safe-haven currency in a time of global turmoil?

The Credit Suisse and CFA Society Economic Sentiment Index slumped from -24 in July to -37.5 in August. This is the lowest since January when it cratered to -44 as investors are fearful of the global economy cooling down amid the US-China trade war and the possibility of currency wars as well.

Meanwhile, the Zew Economic Sentiment Index in Switzerland dipped from -26.9 last month to 24.0 this month.

Speaking at an economic conference on Wednesday, Swiss National Bank (SNB) governing board member Andrea Maechler said that officials plan to keep an expansionist monetary policy as part of efforts to limit safe-haven demand for the franc. She revealed that the SNB would be prepared to suppress interest rates in subzero territory and even intervene in currency markets.

By doing this, the SNB would, in theory, diminish the franc’s appeal. Maechler said that the franc is highly valued and too attractive to investors trying to flee global volatility.

She confirmed that the SNB is also weighing the pros and cons of expanding its balance sheet.

We think that the franc remains at a very high value, absolutely. That’s why… we need an expansionist monetary policy… but yes it’s clear there are risks

We need to have a sustainable monetary policy and keep our margin of maneuver.

But one Swiss economist believes that there is too much focus on central banks.

Speaking in an interview with Bloomberg, Swiss Re chief economist Jerome Haegeli said that there has been a lot of discussion on what central banks could do to prevent the next financial crisis. He posited that policymakers need to talk about strengthening an economy’s ability to withstand future downturns, and “stop worrying about central bank stimulus.”

He added that economies cannot be resilient when there is constant chatter about negative yields, massive debt loads, and low growth trends.

The biggest takeaways from his interview are that the world is suffering from “asset-price inflation” and that there is a one-third chance of a recession. Ultimately, he predicts that there will be a “marriage” between fiscal and monetary policy in the coming months or years.

The USD/CHF currency pair rose 0.04% to 0.9818, from an opening of 0.9801, at 19:19 GMT on Wednesday. The EUR/CHF fell 0.04% to 1.0880, from an opening of 1.0886.

If you have any questions, comments, or opinions regarding the Swiss Franc, feel free to post them using the commentary form below.

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