Switzerland will meet US criteria for currency manipulation

Switzerland’s foreign-exchange interventions to weaken the franc will be enough for the U.S. to qualify the country as a currency manipulator, though it has the option to hold back on the designation, according to people familiar with the matter.

Switzerland is likely to meet all three criteria when the U.S. Treasury updates its report on the currency practices of trading partners, said the people, who declined to be identified because the document hasn’t yet been published.

While the manipulation label doesn’t lead to immediate sanctions, the risk for SNB President Thomas Jordan is that speculators start to question his resolve to intervene, prompting them to push the currency higher. Officials have said that being labeled a manipulator by the U.S. won’t stop them from intervening when needed.

“The biggest concern would be that investors might be willing to speculate on a higher franc,” said Alessandro Bee, an economist at UBS Group AG.

The franc was little changed at 1.0749 at 8:52 a.m. Zurich time on Thursday. It’s gained about 0.9% this month.

The U.S. could also decide not to proceed with the designation, the people said. Spokespeople for the Treasury Department and the SNB declined to comment.

The semi-annual Treasury report has been delayed since April, and the agency has also not yet released it’s second report of 2020 that was due in October. Outgoing Treasury Secretary Steven Mnuchin is expected to release his final report before President-elect Joe Biden takes office on Jan. 20, according to one of the people.

Switzerland is already one of a number of countries on the Treasury “monitoring list” for currency practices. The central bank has spent years trying to stem the franc’s appreciation, an effort that went into overdrive in 2020 amid a market rout in the early days of the coronavirus pandemic.

Spending in the first half of the year soared to 90 billion francs ($101 billion). That’s equivalent to 12% of Switzerland’s annual economic output.

The SNB has sought to respond to U.S. calls for more transparency by publishing intervention data more regularly. It’s also long argued that the policy, along with negative interest rates, is designed to combat deflationary risks and not to game the currency for competitive advantage.