What’s next for the SNB and the CHF? In December’s meeting, the SNB hiked rates by 50bps as expected to 1%. The SNB like central banks around the world has been responding to an uptick in its inflationary pressures. The latest headline inflation print for Switzerland is at 2.8% for December and that is well down from the August peak of 3.5%.
However, December’s reading for the core inflation rate showed an uptick to 2% which is in line with the high summer reading of 2%.
On balance there is nothing happening in Switzerland that is very different from the rest of the world and Short Term Interest Rate markets are now pricing in a peak of 1.67% for this year and around a 50/50 split as to whether the SNB hikes by 25 or 50bps at the next meeting on March 23. The meaning? Well, a 50bps hike in March by the SNB could signal the end of its hiking cycle for now.
The takeaway
The recent CHF strength could start to see a top on the CHF index if you look at the chart below around the level marked.
With the SNB rate possibly peaking in March a retracement lower in the CHF could be a potential play against another currency that has a strong reason for gains. So, if US inflation rises, but Swiss inflation falls this may open up a divergence between the SNB and the Fed. If you want to have a quick way of seeing if this divergence is in play look at the bind yield spread between the US10Y and the CH10Y overlaid on a USDCHF chart.
Our products and commentary provides general advice that do not take into account your personal objectives, financial situation or needs. The content of this website must not be construed as personal advice.
Recommended Content
Editors’ Picks
EUR/USD stays near 1.0800 after upbeat US data
EUR/USD stays under modest bearish pressure and trades near 1.0800 in the American session on Thursday. The data from the US showed that the real GDP growth for the fourth quarter got revised higher to 3.4% from 3.2%, supporting the USD and weighing on the pair.
GBP/USD stays in daily range above 1.2600
GBP/USD fluctuates in a narrow channel above 1.2600 on Thursday. The better-than-expected Initial Jobless Claims data from the US and the upward revision to the Q4 GDP growth helps the USD stay resilient against its rivals and limits the pair's upside.
Gold pulls away from daily highs, holds above $2,200
Gold retreats from daily highs but holds comfortably above $2,200 in the American session on Thursday. The benchmark 10-year US Treasury bond yield stays above 4.2% after upbeat US data and makes it difficult for XAU/USD to preserve its bullish momentum.
XRP price falls to $0.60 support as Ripple ruling doesn’t help Coinbase lawsuit against SEC
XRP programmatic sales ruling by Judge Torres was completely rejected by another US Court that ruled in favor of the SEC in a lawsuit against Coinbase.
Portfolio rebalancing and reflation trades emerge into Q2
Yesterday’s price action pointed at a possible end-of-quarter portfolio rebalancing as the session saw the laggards of the quarter like Apple and Tesla gain, and the stars like Microsoft and Nvidia retreat.