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JPMorgan Remain Bullish USDCHF on Improving Global Growth/Higher for Longer Thesis

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  • Barring a substantial downside miss on Swiss CPI next week, the signalling value in Jordan’s speech materially reduces the probability of an SNB rate cut in June, according to JPMorgan. Jordan’s comments also suggest SNB could at least start selling less CHF than they have been so far this year.
  • The SNB may want to conserve ammunition in case there is a shock later in the year. Even in the case where the SNB doesn’t cut in June, JPMorgan think the market will want to sell into the resulting CHF rally, as flow, carry and growth dynamics favour Franc weakness over the medium term. Over the short term however there are clear obstacles to CHF weakness.
  • The market has found it hard to price additional SNB easing beyond two cuts for 2024 as the beta to the US rates market has remained strong. Importantly for CHF though, Swiss market yields have the second lowest volatility in G10, after Japanese rates.
  • JPM think USD/CHF remains one of the best trading expressions to hold in a world of improving global growth and risks of higher-for-longer policy. Their long AUD vs CHF, JPY basket they also have high conviction in given the dynamic whereby higher global yields see the funding leg perform and lower global yields cause the cyclical leg to perform, so the trade is more effectively hedged to the level of rates compared to other cyclical crosses, and therefore more able to sustainably price stronger growth and continued carry strategy outperformance.
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  • Barring a substantial downside miss on Swiss CPI next week, the signalling value in Jordan’s speech materially reduces the probability of an SNB rate cut in June, according to JPMorgan. Jordan’s comments also suggest SNB could at least start selling less CHF than they have been so far this year.
  • The SNB may want to conserve ammunition in case there is a shock later in the year. Even in the case where the SNB doesn’t cut in June, JPMorgan think the market will want to sell into the resulting CHF rally, as flow, carry and growth dynamics favour Franc weakness over the medium term. Over the short term however there are clear obstacles to CHF weakness.
  • The market has found it hard to price additional SNB easing beyond two cuts for 2024 as the beta to the US rates market has remained strong. Importantly for CHF though, Swiss market yields have the second lowest volatility in G10, after Japanese rates.
  • JPM think USD/CHF remains one of the best trading expressions to hold in a world of improving global growth and risks of higher-for-longer policy. Their long AUD vs CHF, JPY basket they also have high conviction in given the dynamic whereby higher global yields see the funding leg perform and lower global yields cause the cyclical leg to perform, so the trade is more effectively hedged to the level of rates compared to other cyclical crosses, and therefore more able to sustainably price stronger growth and continued carry strategy outperformance.