The SNB decided a cap of 1.20 francs to the euro last September after the currency soared due to the euro zone crisis, with investors fleeing the euro to the safe haven of the Swiss franc.
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Swiss Francs
The policy was put in place by the bank’s former president Philipp Hildebrand, who stepped down in January, to weaken the currency which had been at an export-damaging record high.
Isaacs, speaking on “Worldwide Exchange” said: “If you’re tied to a weak currency and the euro has depreciated by about 10 percent on a trade-weighted basis since last September, when the cap came in, then obviously your currency goes down with it.”
He suggested that the policy was quite controversial in Switzerland with both politicians and the business community. He felt that the bank had no choice but to go along with Hildebrand’s policy since his departure but would ultimately have to act.
“My point is that there was never the political consensus there, that consensus is now fraying at the edges at the cost of the intervention. In May alone the SNB bought $65 billion worth of currency and bearing in mind its a very small economy of only 8 million people.”
In a separate research note Isaacs told CNBC that he felt that this was a cheap opportunity for aggressive investors to short the euro, adding that portfolio investors should consider the diversification and safety of what he saw as a long time refuge of value.
Looking ahead at a possible withdrawal from the cap, he believed that it wouldn’t come during a currency crisis but might occur following a few weeks of euro short-covering.