The SNB constantly try to battle a strong CHF. Why? It is because Switzerland have a strong export economy and a strong CHF makes things harder for Swiss exporters. In an ideal world, the SNB would weaken the CHF. They have tried to do this by guarding a specific level on the EURCHF at 1.2000. However, that experiment went spectacularly wrong in January 2015 when they removed the peg.

So, what should traders watch from the SNB this week as they meet early on Thursday morning?

Expectations are for no change

The general rule of thumb is that the SNB will take their cue from the ECB. Swiss rates should only rise when the ECB move. The ECB has kept a possible 2022 interest rate hike alive after their meeting earlier this month. See here for a summary. Surging inflation will make the CHF attractive as an inflation play, so with those strong forces favouring CHF strength, it seems unlikely that the SNB will move from the current policy stance.

Look for comments on the Real Exchange Rate

The SNB is focused on the Real Exchange Rate rather than the nominal exchange rate. So, the spot level of EURCHF is not what the SNB are primarily looking at. This means that we need to see what they think about the REER rate. Is it acceptable? If the SNB are reasonably happy then that means the EURCHF can keep moving lower. Remember, as George Doran points out from, CHF is seen as both an inflation hedge and a safe haven. This means that the CHF can in theory keep rising. Is the SNB going to be happy with that? At what point, if at all, will the SNB start to intervene in the FX markets by buying Moree euros and USD. The latest sight deposits data shows that the SNB has recently increased their Euro and Dollar purchases.

What this makes clear is that should the geo-political risk fade then the EURCHF should spike higher as this increases the chance that the ECB will act more quickly to combat rising inflation in the eurozone.

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