SNB forex reserves hit another record in October

In the morning SNB released the Swiss FX reserves for October. The Swiss National Bank's foreign-currency reserves jumped by 17 billion Swiss francs ($17.04 billion) in the month, putting the central bank on track for another banner quarter after earning a record-high profit of 32.5 billion francs between July and September.

The data increased strongly to $741.5 billion from $724.4billion. Tuesday's report is the latest evidence that the SNB's massive wager, that by purchasing hundreds of billions of francs worth of foreign assets it could reduce the franc's value, is paying off, both in terms of weakening the franc and pumping up its own finances. A weaker franc raises inflation, which is super low in Switzerland at 0.7%, and helps exporters.

The SNB balance sheet continues to expands, meaning that the SNB still believes the CHF is overvalued, or at least that upside risks on the CHF are strong. It is clear that as long as global monetary policy remains loose, the Swiss FX reserves will continue climbing and increase the SNB exposure to global economic conditions.

Given the size of the SNB's reserves, which exceed Switzerland's entire gross domestic product, even a small weakening in the franc can mean many billions of francs in paper profits. The euro rose nearly 5% against the franc in the third quarter, raising the value of the SNB's 320 billion francs worth of euro assets.
The strong quantitative easing from the European Central Bank continues at least until September 2018 and this is still posing threat to the Swiss stability. Inflation, which seems to be back in the US, has slowed unexpectedly in Europe in October preventing a bigger change of the ECB monetary policy. Stronger European inflation would definitely help to clear some pressures off the CHF.