Synopsis:

HSBC continues to support a long position in USD/CHF, targeting a rate of 0.8740. Recent mixed economic data from Switzerland—slower inflation but better-than-expected GDP growth—has not significantly impacted USD/CHF. HSBC anticipates that the Swiss National Bank (SNB) will proceed with a rate cut, with the tone of the announcement being crucial for future CHF movements.

Key Points:

1. Swiss Economic Data:

   • Inflation: August headline inflation slowed to 1.1% YoY from 1.3%, below the consensus of 1.2%. Core inflation remained at 1.1%.
   • GDP Growth: Q2 GDP rose by 0.7% QoQ, surpassing the consensus of 0.5%. Stripping out international sports spending, GDP growth was 0.5% QoQ, consistent with Q1 and expectations.

2. SNB Policy Outlook:

   • Rate Cut Expectation: The market fully expects the SNB to cut the policy rate on September 26.
   • Potential Tone: HSBC anticipates a dovish tone from the SNB to avoid further CHF appreciation given the current inflation undershoot.

3. USD/CHF Position:

   • Despite the mixed data, HSBC maintains a long position in USD/CHF with a target of 0.8740.

Conclusion:

HSBC’s long USD/CHF position is supported by the expectation of a rate cut by the SNB and a potential dovish tone to mitigate CHF strength. Mixed economic releases from Switzerland, particularly the slower inflation, are unlikely to deter the SNB from proceeding with the rate cut.