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STIR: Hawkish CHF STIR Reaction To CPI Could Prove Short-Lived

STIR
BulletMarketsForeign Exchange Bullets

Should Swiss CPI come in lower during Feb & Mar (as intimated by the SNB's forecasts), today's hawkish moves in CHF STIRs could prove short-lived and subject to a reversal.

  • The move has already been tempered by the expectation-matching headline CPI readings and as markets price in some optionality of the SNB easing beyond its March decision.
  • Pictet’s Frederik Ducrozet highlights dovish risks despite the firmer-than-expected core reading. He suggests that “with domestic goods and services inflation collapsing to a new low, the SNB needs a large depreciation of the CHF or they will have to cut further.”
  • SNB-dated OIS still virtually fully discounts a 25bp cut at the March decision.
  • However, today’s data leaves the market only pricing roughly even odds of further easing beyond March, showing ~35bp of cumulative cuts through June (vs. 37bp late yesterday), 37.5bp of cumulative cuts through September (vs. 45bp late yesterday) and 38bp of cumulative cuts through December (vs. 47.5bp late yesterday).
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Should Swiss CPI come in lower during Feb & Mar (as intimated by the SNB's forecasts), today's hawkish moves in CHF STIRs could prove short-lived and subject to a reversal.

  • The move has already been tempered by the expectation-matching headline CPI readings and as markets price in some optionality of the SNB easing beyond its March decision.
  • Pictet’s Frederik Ducrozet highlights dovish risks despite the firmer-than-expected core reading. He suggests that “with domestic goods and services inflation collapsing to a new low, the SNB needs a large depreciation of the CHF or they will have to cut further.”
  • SNB-dated OIS still virtually fully discounts a 25bp cut at the March decision.
  • However, today’s data leaves the market only pricing roughly even odds of further easing beyond March, showing ~35bp of cumulative cuts through June (vs. 37bp late yesterday), 37.5bp of cumulative cuts through September (vs. 45bp late yesterday) and 38bp of cumulative cuts through December (vs. 47.5bp late yesterday).