All SNB Can Do Now Is Manage Franc's Rise. By Nicholas Hastings

Expect more intervention from the Swiss National Bank.

But don't expect the Swiss franc to stop rising.

In fact, the best the SNB can be expected to do now is manage the Swiss currency's rally.

This was already evident this week, when the central bank intervened only lightly and below the euro/franc levels it had intervened at before.

There was little sign that the exercise was designed to do any more than act as a drag on the franc's advance.

See how the SNB has slowed the euro's fall against the franc as opposed to its recent steeper decline against the dollar:


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Click Image to Enlarge


The reasons for this are twofold: strong fundamentals are only likely to push the franc even higher from here, at the same time that the recovery in the Swiss economy should ensure that central bank can tolerate a stronger currency.

Wednesday's lukewarm euro reaction to Greece's latest austerity package brought a strong reminder of the forces at work.

Chances are that the single currency will remain under heavy selling pressure for some time to come, not only while Greece and other euro-zone debtors resolve their debt problems but also because the fiscal position of the euro zone as whole remains in jeopardy.

This will ensure that euro-zone growth continues to lag well behind initial expectations and that the European Central Bank has little option but to keep euro-zone interest rates down at its current ultra-low levels.

Rising optimism about a global economic recovery will only make matters worse for the single currency, ensuring that it is sold down against the currencies of all the countries where interest rates are set to rise.

And, as recent data suggest, Switzerland is certainly one of these.

Over the last week or so the country's Kof survey as well as its purchasing managers' indexes have surprised on the upside. Also, fourth-quarter gross domestic product growth figures Tuesday came in at 0.7%, well above forecasts for 0.4% growth.

Upward revisions to growth in previous quarters only added to the impression that the Swiss economy is pulling of recession far ahead of the euro zone, where the economy only expanded by 0.1% in the fourth quarter.

And it is just this that should make the Swiss authorities that much more tolerant of a stronger currency and ensure that while the SNB continues to intervene it does so at gradually lower levels.

There were already signs of this late last year when the central bank allowed the euro to fall under CHF1.50 for the first time since it launched its intervention assault in March.

Its last intervention exercise on Tuesday was a considerably more tame affair, aimed at stopping a fall in the euro under CHF1.4623. The last time the bank intervened a week ago, it waded in when the euro was up a little higher at CHF1.4636, suggesting that it is allowing the euro to gradually sink against the franc at a rate that reflects more confidence in the country's economic recovery.

Early Thursday in Europe, the euro was trading at CHF1.4634, up a little from $1.4627 late on Wednesday in New York, according EBS.

As financial markets continue to worry about how Greece's debt problems will be resolved, the euro has come back under pressure. It has fallen to $1.3644 from $1.3703 and to Y120.54 from Y121.17. The dollar is also down a little at Y88.35 from Y88.43.

The focus now is on a Greek bond issue due to be launched before the end of this week, and on whether German Chancellor Angela Merkel will provide anything more than verbal support for Greece when she meets Prime Minister George Papandreou in Berlin Friday.

General market sentiment is also being depressed by a slide in global equity markets and fears that U.S. non-farm payrolls on Friday will disappoint, casting fresh doubt on the pace of the U.S. recovery.