"(We're) looking at it with optimism, we can argue that very slowly the deflationary spiral seen for a couple of years now is seemingly coming to an end. That should encourage the SNB that its 1.20 franc cap (against the euro) is not only working on a forex basis but also for prices"
-Tony Nyman, analyst at Informa Global Markets
Holdings by the Swiss National Bank stood at 432.45 billion franc in September, slightly down from 434.2 billion a month earlier, even despite the fact the Alpine country's currency advanced against the Euro and greenback. In order to defend the cap the central bank has amassed foreign-currency reserves equal to almost 75% of the nation's GDP. Investors are still considering Franc as safe haven currency in times of heightened global stress, and are constantly pushing the currency higher, which already gained 0.5% and 2.8% versus the U.S. Dollar in September. During the September's policy meeting SNB's President Thomas Jordan said there is no reason to discuss an exit of the cap, which is defended since September 2011, when the SNB imposed it to prevent deflation and avoid recession.
Since that time Swiss authorities have been constantly reassuring markets in their pledge to defend the level for as long as it is needed. So far this measure helped to strengthen the economy, and according to the latest data it is only likely to build up steam in the coming months, due to improvement in global economy, stronger investor and consumer confidence and increased manufacturing production. However, one of the main risks for the SNB remains the huge percentage of Euro in SNB's reserves. By the end of the second quarter, the SNB held 48%, 27% and 9% in euros, dollars and Japanese yen.
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