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May 31 - 02:55 PM

Danske: Keep an Eye on CHF N-Term; Here is Why?

By eFXdata  —  May 31 - 02:00 PM

Synopsis:

Danske Bank highlights recent developments that have positively impacted the Swiss Franc (CHF), pointing to strong Swiss GDP growth and comments from SNB President Thomas Jordan as key factors influencing near-term expectations for CHF.

Key Points:

  1. Strong Q1 GDP Growth: Switzerland's GDP for Q1 exceeded expectations, growing by 0.5% quarter-over-quarter, supported by robust domestic demand. This growth rate surpassed both the consensus and previous quarter's figures.
  2. SNB President's Remarks: In a recent speech, SNB President Thomas Jordan suggested that the neutral interest rate (r*) might be rising, posing a potential upward risk to inflation forecasts. He also noted the SNB's ability to counteract inflation risks due to a weaker CHF by purchasing CHF or selling foreign currency.
  3. Inflation and Currency Movements: April's inflation was higher but aligned with SNB's projections, and recent weakening of the CHF in both nominal and real terms could prompt the SNB to adjust its policy.
  4. Implications for June SNB Meeting: The combination of strong economic indicators and potential inflation risks lowers the likelihood of a pause in rate adjustments by the SNB in June. However, May inflation data will be crucial in determining the immediate policy direction.

Conclusion:

Given the strengthened economic backdrop and recent dovish signals from the SNB, there is a reduced likelihood of a policy pause in June. The near-term trajectory for EUR/CHF is expected to trend higher before a projected decrease over the next 6 to 12 months. This scenario underscores the lesser significance of whether the SNB pauses in June or resumes rate adjustments later, as market expectations may adjust accordingly.

Source:
Danske Research/Market Commentary

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