We saw a flurry of action in Swiss Franc pairs as it seems to SNB is directly intervening in markets again with the EUR/CHF pair climbing from 1.2062 to above 1.2170 in the span of a few minutes. The GBP/CHF and USD/CHF pairs have followed in Frank weakness.
Expectation here is that the Swiss National Bank, even after getting the EUR/CHF pair up above the 1.20 level, is still not satisfied with the current levels and may try to move the peg it has set even even higher in the subsequent days and weeks.
We saw the Swiss government downgrading its forecast of GDP as a result of the very strong Frank.
From Bloomberg: The Swiss government lowered its economic-growth forecasts for this year and next, calling the franc still very highly valued after the central bank imposed a currency ceiling against the euro.
Swiss gross domestic product will rise 1.9 percent this year and 0.9 percent in 2012, the State Secretariat for Economic Affairs in Bern said in an e-mailed statement today. In June, it had forecast the economy to expand 2.1 percent and 1.5 percent this year and next, respectively.
UPDATE 9:18AM ET: The decline in the EUR/CHF following its surge gives us a hint that the pop in the Swissy may not have been driven by the central bank after all, but a herd mentality on the rumor and some strong price action that may have snowballed as stops were triggered along the way. Still, the fact that the market reacted so strongly to rumors of the SNB wanting to raise its EUR/CHF floor to 1.25 shows the respect that the market has for the SNB following its previous intervention.
Chief Market Analyst