Fewer interventions. Are the hands of the SNB tied by Washington?

Trade relations between Switzerland and the United States have been a silent underlying theme since the Trump administration first took a close look at Switzerland and then called it a currency manipulator in 2020. In the first report on foreign exchange under the Biden administration (released in April), the US Treasury lifted labels of manipulation on Switzerland and Vietnam and did not designate Taiwan as manipulator despite having met all quantitative criteria. This was seen as a sign that the Treasury was adopting a lighter touch to foreign exchange practices under Janet Yellen. In practice, however, all three countries have come under scrutiny, and the Treasury has indicated it has engaged in bilateral talks to discuss possible injustice in foreign exchange practices.

These talks resulted in an agreement between the United States and Vietnamese monetary authorities in late July, where the USTR pledged not to impose tariffs in exchange for a pledge not to engage in devaluation of the dong for competitive purposes.

Bullish bets on CHF and speculation on US Treasury pressure

The recent bullish bets on the CHF may be partly correlated with speculation that the US Treasury is putting pressure on the SNB to refrain from intervening in the forex market. What should be noted, however, is that the Treasury is entitled to target only countries that devalue their currency to gain a competitive advantage over their exports. A small developing country, heavily dependent on the export of goods, such as Vietnam, easily fits this definition. Switzerland, despite a large current account surplus and net merchandise exports to the United States worth $ 57 billion in 2020, has long explicitly used foreign exchange interventions as a monetary policy tool and not for purposes. commercial.

At the same time, the United States’ decision to adopt a conciliatory tone with Vietnam in recent bilateral talks may have been dictated by certain geopolitical considerations. Vietnam has been a prime country for the diversion of production processes affected by US tariffs to China and is seen as playing an important role in US plans to reduce China’s influence in Asia. Switzerland could certainly not count on geopolitical leverage if the Treasury decided to tackle the SNB’s monetary practices more aggressively.

The next foreign exchange report is due in October, but a potential SNB reaction to the appreciation of the Swiss franc through foreign exchange interventions may already give us clues that the Swiss authorities are not feeling – like they are. have said it over and over again – pressure from the US Treasury. Let’s keep an eye on the weekly CHF sight deposit data to see if the SNB intervention in the forex market resumes now as EUR / CHF is trading at 1.07s low.