SNB Prompts CHF Outperformance

Overnight comments from SNB Chair Jordan leave CHF as the G10 FX outperformer.

• Jordan identified a “small” upward risk to the SNB’s inflation forecast, while noting that there are reasons to believe that the natural rate of interest has increased somewhat or might rise over the coming years.
• Elsewhere, Jordan stated that if upside risks to inflation do materialise then it would most likely result in a weaker CHF, which could be countered via selling other currencies.
• Jordan’s comments also pressured SARON futures, even as broader core global FI markets stabilised, providing money market- & yield spread-derived support for the CHF.
• SNB-dated OIS shows ~9bp of cuts through the June meeting (vs. ~12bp at yesterday’s close), while December meeting pricing shows ~20bp of cumulative easing (vs. ~25bp at yesterday’s close).
• The SNB’s first mover status when it comes to G10 easing cycles has undermined the CHF in early ’24, but Jordan’s comments have introduced some hawkish risks to that assessment.
• Also note that firmer-than-expected Swiss Q1 Q/Q GDP data provided fresh tailwinds for the Swissy, although the Y/Y reading was a touch softer than expected, even with modest downside revisions in the dataset, likely limiting the net reaction.