The interest rate for the SNB is at 1.00% and the SNB is not due to meet until March 23. So, what’s the picture with the CHF?
Expectations for the next meeting
Short Term Interest Markets are expecting a 50bps rate hike at the March meeting. The terminal rate is projected to be at 1.84% by the end of this year. So, this could potentially mean the SNB makes the next rate hike the last. Check out the terminal rate expectations from Financial Source’s Interest Rate tracker.
The CHF’s reaction
The CHF was gaining value from around the end of last year on expectations that the SNB would need to be more aggressive, but that hawkishness is now fully priced in. So, further CHF strength seems unlikely. The best opportunity would come from any news that would weaken the CHF as that could allow some of the recent strength to unwind. See the chart at the very top.
On February 2, Chairman Jordan said that he cannot rule out the need for the SNB to raise rates further, but seeing no wage price spiral in Switzerland. On February 20, SNB’s Schlegel says the bank is willing to be active in FX markets. January’s inflation print took a jump higher back up towards last year’s summer highs.
The month-on-month data showed a similar move. Interestingly this m/m spike was also seen in the US CPI and PPI prints recently.
The core is also ticking higher at 2.2% for January in a new high, so it is too soon to say inflationary pressures are fading. However, any strong misses, showing inflation is falling should weaken the CHF. The trade would be to look for any currency that is enjoying strength at the time to pair it against the CHF for a short-term scalp. Swiss inflation data is out on March 6.