Swiss Franc Is Still 11% Overvalued, SNB Data Show

The Swiss franc is overvalued by 11 percent in June, a sign the Swiss National Bank will stick with its current policy even as euro-area tensions abate.

The overvaluation increased from nearly 10 percent in May, according to a gauge of the currency’s effective strength in real terms versus 40 trading partners, according to data published in the Zurich-based SNB’s monthly statistical bulletin. A year ago it was about 21 percent too strong, the data show.

The SNB set a cap of 1.20 per euro on the franc in September 2011 to ward off deflation and a recession. A month earlier, investors worried about the bloc’s debt crisis had pushed it nearly to parity with the common currency. The franc was 28 percent overvalued in August 2011, the data indicate.

Even with the strong currency, the Swiss economy has managed to dodge the recession that has befallen the neighboring euro area. Consumer prices fell for their 21st straight month in June.

Given the franc is overvalued, “we are not looking for a softening of the SNB’s position on the minimum exchange rate at 1.20 any time soon,” Reto Huenerwadel, an economist at UBS AG in Zurich, said in a note to clients today.

SNB President Thomas Jordan said on July 20 that he had no intention of changing or scrapping the cap, a line he also took at the central bank’s most recent policy review in June.

An easing of the euro area’s debt crisis has allowed the franc, which investors buy as a haven at times of heightened uncertainty, to depreciate 2.5 percent against the euro this year, while declining 2.2 percent against the dollar. It was down 0.2 percent against the euro at 1.2389 at 11:10 am in Zurich. Against the dollar it was little changed at 93.58 centimes.

That reduction in anxiety among investors is also evident in foreign bank’s franc deposits with institutions in Switzerland, which declined in May.

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