Peter A Rosenstreich
Swissquote Bank Ltd
In a surprise move Switzerland consumer price inflation rose higher then forecasts. The move will certain triggers speculation of quicker normalization of extreme policy. Swiss May CPI came in at 0.4% m/m vs. 0.3% m/m exp (1.0% y/y vs. 0.9% y/y) while core CPI climbed 0.1% m/m and 0.4% y/y. The higher read was spread around underlying components indicating a continue of strong trend since Feb 2016. Yet simple projections have inflation reaching the SNB target around late 2019, so the central banks is unlikely to panic when it see these numbers. Call to push forward the tightening cycle is likely to fall on deaf ears. With political risk rising in Europe resulting into a stronger CHF, the SNB will stay steadfast in current defensive policy mix. In fact at 21st June rate decision we will likely hear further commitment by the SNB to weaken “overvalued” CHF, rather than acknowledging inflations pressures.
The SNB has played a dangerous game with extreme policy actions, unwinding these actions will come with significant certainties. Even subtle changes in languages could be the catalyst to reloading CHF long by investors who have long abandoned the currency due to high carry costs. EURCHF was higher on the news as trades remain focused on the short term positive news out of Italy over the long play of SNB policy.
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This report has been prepared by Swissquote Bank Ltd and is solely been published for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any currency or any other financial instrument. Views expressed in this report may be subject to change without prior notice and may differ or be contrary to opinions expressed by Swissquote Bank Ltd personnel at any given time. Swissquote Bank Ltd is under no obligation to update or keep current the information herein, the report should not be regarded by recipients as a substitute for the exercise of their own judgment.
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