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Swiss National Bank’s Tomas Jordan has been reported to say that the Swiss economy may contract in coming quarters and stated the FX intervention is very important. 

Jordan has continuously defended interventions, especially in the face of the Covid-19 shock following a wave of capital seeking a safe haven. 

Market implications

Despite the policy rate in Switzerland remaining at -0.75%, monetary easing by other central banks in response to the pandemic cut the interest rate differential.

This is encouraging capital flows due to high uncertainty, which pushes investors to seek safety. 

We have seen USD/CHF on the bid on Monday as the currency seeks to correct and break resistance in the DXY. 

However, the pair is down some 11% since the start of the year despite efforts by the SNB to stem the rise.

The SNB has been buying up billions of US dollars, to such an extent that the US Treasury recently labelled Switzerland a currency manipulator.

The Biden administration is expected to implement further easing and the Federal Reserve is not indicated to start tapering any time soon.

This means that the SNB will have a tough time keeping a lid on market enthusiasm for the Swiss franc, especially at times of uncertainty.