SNB FX reserves jump higher in June; investors position to take on Swiss central bank

The SNB’s holdings rose SFr59 billion to a record SFr364.9billion last month, from an upwardly revised SFr305.9 billion in May. That means Swiss reserves have risen from about 40% of GDP to more than 60% in the last two months, as eurozone debt tensions have intensified and investors have sort sanctuary in the franc.

The exact currency allocation of the central bank’s holdings will not be made public until later in the month.

Figures from the SNB’s March balance sheet, however, showed it had learnt its lesson from its intervention campaign in 2009/2010, when it kept its holdings to 70% in EUR, and was diversifying its incoming holdings in single currency into USD, JPY, GBP and CAD.

Indeed, flows from the SNB have been a source of selling pressure on EUR currency crosses.

Citi estimates that if the SNB kept the allocation of its reserves constant last month, it would have bought USD 12 billion, JPY 228 billion, GBP 2 billion and CAD 2 billion.

Ominously for the SNB, Citi’s positioning indicator also shows that investors, having cut their long positions in EURCHF, are now starting to build fresh shorts.

With the ECB’s decision to cut rates this week, it is likely that more funds will have been pouring into the relative safety of Switzerland.

The SNB will have to keep on breaking records if it wants to maintain the floor in EURCHF. That, in turn, implies more pressure on the EUR crosses.