SNBs Jordan: Negative rates are ‘necessary for now’

  • SNB jawboning at a time of uncertainty in global markets. 
  • EUR/CHF at 1.08 is a key level to watch with respect to the ECB this month.

The Swiss Nation Bank's Jordan is crossing the wires, saying that negative rates are ‘necessary for now’ and that it cannot be said how long negative rates will last.

This is classic jawboning at a time of uncertainty in global markets. The CHF has recently hit more than two-year highs against the euro as escalations in the Chinese-American trade wars and various geopolitical tensions spook financial markets concerned for global growth. EUR/CHF is higher by 0.65% today, recovering from the aforementioned lows but remains in a persistent downtrend and troublesomly so for the SNB. 

"Swiss growth has been slowing down and we believe the economy will continue to decelerate in the coming months, suggesting another rate cut could be on the menu again," analysts at ING Bank argued.

"Swiss GDP increased by only 0.3% quarter on quarter in 2Q19, down from 0.4% in the first quarter, which was revised down further from 0.6%. On an annual basis and adjusted for the effects of sporting events, growth was 0.9%, down from previous quarters.

Domestic demand and foreign demand for services were weak in the second quarter. Trade tensions and the downturn in Germany, Switzerland's main trading partner, are clearly weighing on the outlook. Investment in capital goods fell by 1% qoq - a sign of dark clouds in the Swiss economic climate."

FX implications

CHF will continue to attract safe-haven flows, but there is always the risk that the SNB will intervene, especially if the European Central Bank dos what it is expected to do when it meets this month and cut interest rates. The SNB will not want EUR/CHF falling below 1.0800 considering half of its export trade is within the euro area.


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