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Foreign Exchange

SNB adds adverb to currency war chest; speculation mounts of rise in EURCHF floor

After describing the Swiss franc as “massively” overvalued when it introduced its SFr1.20 floor in EURCHF in September, the Swiss National Bank has upped the rhetoric against strength in its currency.

Thomas Jordan, acting chairman of the SNB, said on Tuesday that the franc remained “excessively, massively” overvalued and its appreciation is a deviation from historical trend.

Jordan re-affirmed the central bank’s commitment to fight appreciation in the franc with all means necessary, saying it would not be tolerated.

The addition of an extra adverb to describe franc strength might not seem earth shattering, but its timing is striking.

While the market was squarely focused on the result of the European Central Bank’s long-term refinancing operation, Swiss data slipped under the radar.

Indeed, the comments came ahead of Wednesday’s consumer price data that showed deflationary pressures remain in Switzerland, while the Kof leading indicator remains negative, indicating that the country’s economy continues to be challenged.

Swiss CPI data showed a fall of 0.9% on an annual basis in January and has remained negative since October 2011, as continued franc strength has allowed for falling import prices.

The data, along with Jordan’s comments, have raised speculation that the SNB could move to raise the floor in EURCHF at its policy meeting on March 15.

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