EUR/CHF: Easy policy bias for SNB suggests weaker franc ahead – CIBC

The latest SNB quarterly policy update, including the annual financial stability report, passed by without fanfare. A persistent easy policy bias is expected to mean a weaker Swiss franc, in the view of economists at CIBC.

Positioning reversal to pace a weaker CHF in H2

“The SNB acknowledged an improved macro environment due to a pickup in global trade, a move which will benefit Swiss exports and support the current account surplus. However, the CPI upgrade proved marginal, in contrast to most global central bank counterparts. Although the CPI peak for this year was modestly revised up, annual inflation is expected to come in at only 0.6% in both 2022 and 2023. The expected CPI shortfall over the forecast horizon underlines a persistent easy policy bias.”

“We expect policy to remain on hold into 2023 despite the fact that the central bank upgraded their 2021 GDP assumption to 3.5%, compared to 2.5-3.0% in March.”

“In view of the persistent CHF overvaluation, and the fact that intervention is the primary policy tool, we expect the SNB to continue to intervene as necessary. After witnessing Swiss sight deposits, a proxy for intervention, decline in the first four months of the year, holdings moved higher in the last couple of months, underlining renewed activity.” 

“With the SNB set to remain resolutely on hold, we look for widening implied rate spreads versus the USD, encouraging a correction in the recent accumulation of CHF longs, from three month extremes. Look for a positioning reversal to pace a weaker CHF in H2.”