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Mar 08 - 02:55 PM

HSBC: Caution Against Fighting Near-Term CHF Weakness Trend

By eFXdata  —  Mar 08 - 01:15 PM

Synopsis:

HSBC advises against countering the recent trend of Swiss Franc (CHF) weakness in the short term, attributing it not to a reversal in Swiss National Bank (SNB) policy but to the diminishing direct influence of the SNB on the CHF. Interest rate differentials, now more closely linked to the CHF's performance against other G10 currencies, have become a dominant factor driving the currency's direction.

Key Points:

  • SNB Policy Shift: The SNB has adopted a more neutral stance, reducing its direct impact on the CHF's valuation. This shift has allowed other market drivers to exert greater influence on the currency's movements.
  • Interest Rate Differentials: The alignment between the CHF's performance and interest rate differentials has strengthened, highlighting the significance of global monetary policy dynamics on the CHF.
  • Inflation and SNB FX Purchases: Recent sticky inflation figures for February and the absence of significant SNB foreign exchange interventions are local factors that have been navigated, potentially paving the way for CHF strengthening, should interest rate dynamics shift favorably.

Conclusion:

HSBC recommends prudence in the face of the CHF's recent depreciation trend, pointing out that the currency's movements are now more closely tied to global interest rate differentials rather than direct SNB policy actions. While the short-term trend suggests continued CHF weakness, HSBC remains vigilant for indicators that could reverse this trajectory, such as shifts in yield differentials that could favor the CHF. The current financial environment suggests a wait-and-see approach, with potential for a stronger CHF as global monetary conditions evolve.

Source:
HSBC Research/Market Commentary

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