CHF: Swiss National Bank opens up to renewed easing – MUFG

Analysts at MUFG Bank, explained the Swiss franc rose yesterday across the board after the Swiss National Bank (SNB) did not follow the European Central Bank (ECB) by easing monetary policy further. 

Key Quotes:

“Like the BoE, there was also a shift in guidance by the SNB yesterday as well – perhaps a more notable shift given the SNB made an actual change in their monetary stance. The Swiss franc was the top performing currency yesterday in part on speculation the SNB would follow the ECB by easing its monetary stance by cutting the key policy rate from -0.75%. The fact they didn’t do that fuelled the CHF outperformance.”

“The change made though does point to potential cuts ahead. From 1st November, the SNB will avoid imposing the negative rate on amounts up to 25 times the minimum reserve requirement, up from 20 times previously. There had already been criticism of the negative rate structure and increased speculation that the negative rate would begin to be seen more clearly in the retail sector. The exclusion of larger amounts of excess reserves certainly acts as a clear signal of greater scope to cuts rates going.”

"The Swiss franc is set to remain under upward pressure and in a no-deal Brexit with the ECB potentially cutting again, or certainly persisting longer with QE, the SNB will likely have to act. The Japanese yen has outperformed the franc this year but the BoJ hinted this week that easing could be forthcoming ahead. If the BoJ was to ease, it would only add to SNB pressure to act. A 25bp cut by the SNB following a no-deal Brexit looks a plausible call at this stage. Nonetheless, we doubt it will have much impact on weakening the franc given risk conditions will remain favourable for the franc and given the global monetary easing already well under way."