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UBS See CHF Appreciation Longer-Term as SNB/Fed/ECB Rate Spread Tightens

CHF
  • On the SNB, UBS write that SNB decision-making is somewhat unpredictable by design, and that FX intervention remains a policy tool even in a positive rate environment. They see the risks of FX purchases as lower than the risk of FX sales.
  • This translates to rates and FX volatility being high on the days of monpol decisions, and as the bar for FX purchases seems particularly high currently, markets may want to hedge this risk.
  • They conclude that while the CHF may depreciate a little in the S/T, the expected tightening of the ECB/SNB and Fed/SNB policy rate spread will likely raise the risk of CHF appreciation in the longer-term.
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