Switzerland will probably get named a currency manipulator by the U.S., making life more difficult for the country’s central bank, according to UBS Group AG.
The Swiss, who for years have been using foreign exchange interventions to prevent the franc from appreciating too much, now meet all three criteria for manipulators set out by the U.S., namely a high trade and current account surplus plus large-scale interventions, economist Alessandro Bee wrote in a note to clients.
Switzerland is already on a monitoring list, and could be upgraded when the U.S. publishes its next report.
The Swiss National Bank says that along with negative interest rates, interventions are essential to prevent the onset of of deflation and a recession. Its policy makers stress they’re not trying to keep their currency artificially low but simply trying to limit a strong appreciation.
“Much depends on the diplomatic skills of the Swiss authorities and the goodwill of the U.S.,” Bee said, adding that the U.S. might abstain from any reprisal steps.
“Even if a conflict with the U.S. can be avoided, meeting all three formal criteria is likely to lead to increased uncertainty about the SNB’s future monetary policy and is likely to increase volatility” in the exchange rate.