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SNB Unlikely to Feel Heat Over Rallying CHF Yet

  • While the nominal EUR/CHF exchange rate has slipped lower throughout the Ukraine crisis (today's low of 1.0232 marks the lowest level since 2015), there is little evidence that the SNB have begun to intervene in currency markets to slow or counter the uptick in CHF. Markets may watch the March 24th rate decision for further clues on the SNB's assessment of currency strength, but the board are unlikely to be overly concerned about the recent rally.
  • Total sight deposits data last indicates that the bank last intervened materially in H1 2020, as the COVID crisis drove the cross lower by around 4 big figures, bringing Swiss inflation expectations markedly lower with it. While the recent downtick has been sharper off the February high, the cross is just ~1.5% lower YTD.
  • It is also worth recalling the SNB assess CHF on a trade weighted basis, tempering EUR/CHF's sharp downtick via much more muted fluctuations against USD, JPY and GBP.
  • Additionally, the yawning gap in inflation differentials between Switzerland (Y/Y CPI last 1.6%), the Eurozone (5.1%) and US (7.5%) further dampens the relevance of the CHF nominal strength for policy-setting, with the spot rally far less notable on a REER basis.
  • As a result, it's likely the SNB will factor recent CHF strength into policy-setting, but may steer clear of upgrading their language in March from 'overvalued' to 'significantly overvalued' in March.
  • Inflation forecasts were upgraded in December, but upside pressures from energy, supply chain costs, could be tempered by CHF spot strength going forward.

CHF rally could temper upside pressure on 2022 CPI forecasts at end-March:

MNI London Bureau | +44 203-865-3809 |

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