By eFXdata — Jan 13 - 11:30 AM
Synopsis:
BofA sees continued downside pressure on the CHF in 2025, driven by rate differentials and weak inflation data, but questions the SNB's capacity to effectively weaken the currency at the lower bound of policy rates.
Key Points:
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Carry-Driven Weakness:
- Swiss inflation data reinforces the case for further SNB easing as global markets question broader easing trends.
- Carry remains the primary driver for CHF depreciation, with Swiss rate dynamics pointing to further downside risks.
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Challenges for the SNB:
- With the policy rate nearing its terminal level, the SNB faces challenges in meaningfully weakening the CHF to stimulate inflation.
- Traditional FX interventions may lose effectiveness, requiring alternative technical market measures.
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USD/CHF Outlook:
- The pair remains positioned for upside as global rate differentials favor the USD, providing a "clean" directional bias in the near term.
Conclusion:
BofA highlights CHF’s vulnerability to carry-related dynamics but emphasizes the need for innovative SNB strategies to achieve inflation targets as conventional policy tools become constrained.
Source:
BofA Global Research