GBP/CHF: Goldman: Go Short On Diverging Policy Support

Late on Friday Goldman Sachs noted that “the SNB confirmed that it has been intervening in the FX market to keep the Franc from depreciating. The announcement reinforces that there has been a regime change at the SNB, and corroborates our view that FX remains an important part of the policy mix. Essentially, the Bank is using FX sales to compensate for having fewer scheduled policy meetings than the ECB, and a stronger currency would help officials meet their low inflation aim.”

• “This means that officials will want to keep a lid on EUR/CHF (by far the most important cross for the Swiss TWI). As a result, CHF should be the clearest beneficiary from the hawkish ECB policy path, as renewed sovereign stress would also put appreciation pressure on the Franc. At the same time, officials at the Bank of England once again hiked in a “reluctant” fashion despite very high inflation.”
• “In our view, this reveals a continued preference to allow the currency to act as the primary adjustment mechanism. We therefore think short GBP/CHF is the best relative value expression of policy divergence - essentially long EUR/GBP with a “BTP hedge.” We recommend investors go short with a target of CHF1.10 and a stop at CHF1.16.”