After the SNB cut its interest rate target to zero on Aug 3 and began broadening the amount of cash in the market, the franc has gyrated.

It touched a lifetime peak near parity with the euro on Aug 9 but then dropped 18 percent to a seven-week low. 

Yet with worries about the health of the global economy intensifying, the franc has gained 7 percent this week.

“It’s clear that if the franc is on a clear course of appreciation toward parity the SNB will want to take further steps,” Credit Suisse economist Fabian Heller said.

Measures under consideration may include expanding sight deposits — accounts the central bank uses to provide the banking system with cash — or imposing a charge on them. Intervening in the spot market is also a possibility.

Investors, including hedge funds and speculators, are keen to maintain their bullish bets on the Swiss franc, given signs global growth is sputtering and the US Federal Reserve may initiate further bond purchases to loosen policy.

“In coming weeks the external developments should be the driver, which may necessitate additional measures from the SNB,” said UniCredit economist Alexander Koch.   

Were the franc to threaten to touch parity with the euro again, the SNB has ample room to act: inflation remains far below the SNB’s 2-percent price stability threshold and political backing for the central bank has solidified, possibly permitting it to resume spot market interventions.

After an annual meeting of the country’s top politicians, the government issued a statement on Friday declaring that all federal parties stood behind the SNB’s actions and asserting that the central bank was alone responsible for currency policy. Such political solidarity behind the SNB is in contrast to the situaion earlier this year when interventions were a political non-starter after the SNB ran up a huge loss in 2010 trying to keep a lid on the franc.

The difference now is that the strong currency is beginning to throttle the economy, with exports softening, corporate profits slipping and politicians warning of rising unemployment.

“(We) would view large-scale, unsterilized SNB intervention as the most natural next step were EUR/CHF to begin approaching parity again,” said George Saravelos, currency strategist at Deutsche Bank.

Risk reversals, a measure of the premium required to hold a put or a call in a currency, remain skewed in favor of euro puts — bets that the common currency will fall.

Risk reversals are strongly skewed toward euro downside, with one-month 25 delta euro/Swiss risk reversals trading at 3.3 in favor of euro puts, creeping up from around 3.0 earlier this week. 

SNB policymakers said in interviews on Aug 11 that the SNB could ease monetary policy further without spot market interventions.

“The impact (of the SNB’s measures so far) is gradually fading as global sentiment turns for the worse,” said Audrey Childe-Freeman, EMEA head of currency strategy at JP Morgan Private Bank.

“The SNB will be under more pressure to act, but they are running out of ammunition and have to use other tools.”

One option is for the SNB to further expand sight deposits. The SNB began boosting them as part of the extraordinary measures it introduced in early August, and they are now getting close to the SNB’s target of 200 billion francs.

The SNB could also, however, try shortening the duration of foreign exchange swaps, using shorter maturities to more closely target the spot exchange rate.

Yet a third option would be charging Swiss banks for clearing foreign banks’ funds. UBS said on Aug 26 that it might charge clients a fee on cash accounts, pushing the franc down against the euro.

There have also been suggestions that Switzerland could implement a tax on offshore deposits to tarnish the “Swissie’s” appeal.

But the measure would not fall within the SNB’s remit and would likely be opposed by the banking sector, already grappling with the strong franc and tougher regulation.

Switzerland tried such a tax in the 1970s, but the measure failed to curb the franc, and in an interview on Aug 11, SNB board member Jean-Pierre Danthine suggested negative interest rates were not a preferred solution, as they would bring about unwanted secondary effects.