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May 03 - 12:55 AM

Danske: Maintains Bearish Stance on CHF, Foresees Potential Aggressive SNB Rate Cuts

By eFXdata  —  May 02 - 04:30 PM

Synopsis:

Danske Bank holds a negative outlook on the Swiss Franc (CHF), anticipating a potential larger-than-expected rate cut by the Swiss National Bank (SNB) in June due to lower inflation expectations and easing geopolitical tensions.

Key Points:

  • EUR/CHF Movement: The currency pair saw significant movement, breaking above the 0.98 level. This was influenced by a decrease in geopolitical risks and an improving market sentiment towards the Euro against the Swiss Franc.

  • Inflation Expectations: April’s inflation data is anticipated with the consensus expecting a slight rise in headline inflation but a drop in core inflation below 1.0% year-on-year. This data is crucial as it will shape expectations for the SNB's monetary policy decisions in June.

  • SNB Rate Cut Outlook: Danske Bank has consistently forecasted a 25 basis point cut from the SNB in June. However, they now see a possibility for a more aggressive 50 basis point reduction if inflation figures trend significantly below target, highlighting an underappreciated risk of deeper cuts.

  • Global Monetary Policy Context: The expected easing cycle across global central banks might be delayed, which reinforces the bearish view on CHF, particularly if other central banks delay easing or adjust their paths less aggressively than anticipated.

Conclusion:

Danske Bank advises investors to maintain a cautious stance on the Swiss Franc in the near term, especially in light of potential aggressive monetary easing by the SNB and the broader context of global monetary policies. The bank suggests that the upcoming inflation data will be pivotal in solidifying the SNB's policy trajectory, potentially leading to significant currency movements in EUR/CHF.

Source:
Danske Research/Market Commentary

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