USDCHF Long View
Central banks have had their say for Q1 and there were arguably two surprises, both from central banks that have deployed negative interest rates in the recent past. The Bank of Japan decided to exit negative rates and the Swiss National Bank (SNB), in a surprise decision, voted to cut their benchmark interest rate – the first of the major central banks to do so.
Lower inflation forecasts for Switzerland and meagre growth lay the foundation for further easing to come from the often-unpredictable SNB before Chairman Thomas Jordan steps down in September. In contrast, The Fed requires more confidence that recent hotter-than-expected inflation is headed towards the 2% target on a consistent basis while growth and the labour market remain resilient – supporting the dollar.
CONTRASTING FUNDAMENTALS PRESENT AN OPPORTUNITY FOR USD/CHF IN Q2
Now that the SNB has pulled the trigger and cut rates, this allows other central banks to consider the doing the same. However, being the first mover, the Swiss Franc opened itself up to currency depreciation due to a worsening of interest rate differentials. For other nations still experiencing stubborn inflation, this would have been a concern but given the franc’s undesirable appreciation and Switzerland’s impressively low CPI (1.2% in February) – the decision to cut actually makes sense for the EU member state.
Lower inflation forecasts for Switzerland and meagre growth lay the foundation for further easing to come from the often-unpredictable SNB before Chairman Thomas Jordan steps down in September. In contrast, The Fed requires more confidence that recent hotter-than-expected inflation is headed towards the 2% target on a consistent basis while growth and the labour market remain resilient – supporting the dollar.
CONTRASTING FUNDAMENTALS PRESENT AN OPPORTUNITY FOR USD/CHF IN Q2
Now that the SNB has pulled the trigger and cut rates, this allows other central banks to consider the doing the same. However, being the first mover, the Swiss Franc opened itself up to currency depreciation due to a worsening of interest rate differentials. For other nations still experiencing stubborn inflation, this would have been a concern but given the franc’s undesirable appreciation and Switzerland’s impressively low CPI (1.2% in February) – the decision to cut actually makes sense for the EU member state.
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