Synopsis:

Credit Agricole highlights the Swiss Franc (CHF) as one of the top-performing G10 currencies in Q3, driven by recent market dynamics and political developments. The upcoming Swiss National Bank (SNB) policy meeting could further influence the CHF’s trajectory.

Key Points:

• Drivers of CHF Strength:

  • Collapse of Carry Trade: Weaker US labor data and a dovish Fed have bolstered funding currencies like the CHF.
  • Political Risks in France: Ongoing political uncertainty following July’s inconclusive elections has supported the CHF as a safe-haven currency against the EUR.

• SNB September Meeting Expectations:

  • Market Pricing: Swiss rates markets are anticipating a 25bp cut in September, with another 25bp cut projected for December. This expectation includes a potential dovish forward guidance from the SNB.
  • Potential CHF Impact: While dovish guidance might limit further CHF appreciation, any indications that SNB rates are nearing their lower bound could challenge current dovish expectations and strengthen the CHF.

• Near-Term Outlook:

  • Political Developments: The appointment of Michel Barnier as France’s caretaker Prime Minister might alleviate some of the political risks, potentially leading to EUR/CHF consolidation.
  • Data Calendar: With recent CPI, GDP, and labor market data releases, the Swiss data calendar is expected to be quieter in the near term.

Conclusion:

Credit Agricole remains cautious about further CHF appreciation ahead of the September SNB meeting, given the fully priced-in rate cuts and potential dovish guidance. However, any signals from the SNB suggesting that rates are approaching their lower bound could shift market expectations and bolster the CHF. Political developments in France may also impact CHF dynamics against the EUR