Commerzbank’s Michael Pfister argues that, with Swiss inflation low and the 2022/2023 shock unlikely to repeat, the SNB is now more worried about a strong franc than inflation. Market pricing implies almost one hike by year-end, but the bank may prioritize FX stability. Recent EUR/CHF gains and the brief dip below 0.90 frame the policy debate.

SNB seen prioritizing currency strength

"Against this backdrop, the current market expectations of almost one full interest rate hike by the end of the year should be evaluated. The SNB is indeed a very active central bank and tries to nip inflation risks in the bud as quickly as possible."

"We therefore strongly assume that the SNB is currently more concerned about the strong franc than about potential inflation risks."

"In recent days, EUR/CHF has slowly trended upwards again, and the dip below the 0.90 level seems to have been a brief excursion, at least for now."

"Since the beginning of the war, the franc is now "only" up by half a cent against the euro, and it has even lost considerable ground against the US dollar."

"Nevertheless, given the unusual recent threat of intervention, questions today will likely also revolve around whether the SNB will intervene more heavily in the foreign exchange market in the coming months."

"We suspect it will likely refrain from making clear statements, possibly citing upside inflation risks. But the SNB is also always good for a surprise."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)