The euro has rallied to its best level against the Swiss franc since the SNB surprised investors by abandoning its franc cap in the middle of January. Since the end of June, the euro has rallied 5.15% against the franc, including today's roughly 0.4% advance. Since the end of July, the euro is up nearly 3%.

There are two main factors at work. First, the easing of the existential crisis in Europe following the capitulation of Greece's Syriza government to nearly all of the creditors demands after balking since the election in late January. The Swiss franc was a haven. If the Greek crisis led to the disintegration of the EMU, as some pundits had warned, the Swiss franc offered an alternative.

The second factor is suspicion that the SNB has been intervening to weaken the franc, in light of the record loss (~CHF50 bln) in reserves reported in for H1, which was a function of valuation changes. Many suspect, for example, that the SNB may be the bid supporting the euro from going through the $1.08 level.

Before the weekend, Swiss officials reported that foreign currency reserves rose from CHF516.2 bln to CHF531.8 bln. While intervention is possible, we suspect it was minimal at best. We note that sight deposits were barely up in July. They rose from CHF457 bln at the end of June to CHF462 blnat the end of July. Indeed, they have remains at CHF462 bln since the middle of the July.

We suspect valuation largely accounts for the increase in the franc valuation of reserves. The dollar is about a third of Swiss reserves, and it rose nearly 3.2% against the franc in the month of July. The euro is about 42% of the SNB's reserves. It rose about 1.6% of against the Swiss franc. The franc value of reserves rose 3%. Sterling is seven percent of the SNB's reserves. It rose about 3.4% against the franc. The yen, which accounts for 8% of the SNB's reserves rose 2.8% against the franc in July. SNB's reserves increased by 3% in franc terms.

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