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Mar 25 - 12:55 PM

CHF: SNB To Tolerate A Stronger CHF; Where To Target EUR/CHF? - Danske

By eFXdata  —  Mar 25 - 10:45 AM

Danske Research discusses the CHF outlook in light of this week's SNB policy decision. 

"As widely expected, the SNB kept monetary policy rates unchanged at yesterday's meeting. Despite EUR/CHF trading close to parity the past month the SNB continues to characterize the CHF as "highly valued", which supports our narrative of a SNB reluctant to intervene at current levels. This repetition can be seen in the light of real trade-weighted remaining range bound and higher inflation pressures allowing the SNB to tolerate a stronger nominal CHF, which we have argued previously. In line with our expectation, we also got slightly hawkish comments from the SNB highlighting that significant increases in oil prices and goods affected by supply bottlenecks are likely to persist, which they deem as the key for the rise in inflation," Danske notes. 

"Judging from the inflation forecast it seems that the SNB is underestimating underlying inflation pressure, which has also been the case for other central banks. We expect the SNB to gradually adjust their inflation expectations higher and thus see the case for monetary policy convergence with the SNB set to follow the ECB. EUR/CHF initially moved slightly higher on the back of the announcement, but quickly retraced during the day. We continue to expect EUR/CHF to move lower over the course of the year, targeting 1.00 in 12M," Danske adds. 

Danske Research/Market Commentary


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