There is growing pressure from investors for global easing of monetary policy, and thus interest rates cut by the largest central banks in the world, as well as other activities aimed at stimulating the economy and inflation.
It seems that the European Central Bank is currently under the greatest pressure, as it did not even manage to normalize monetary policy after the crisis a decade ago, and is already forced to take further action. The most likely scenario here is at least a cut in the deposit rate and possible resumption of the asset purchase program. Such market expectations together with the increase in investors' risk aversion may have resulted in a significant strengthening of the Swiss franc.
On the currency market, the EUR/CHF has fallen to its lowest level since June 2016, attracting the attention of the Swiss Central Bank (SNB). The Swiss have no strong franc, which they expressed in 2011, introducing a minimum exchange rate in the EUR / CHF pair at 1.2000. At that time, Europe was in crisis, and capital was returning to Switzerland very quickly. The current rate of franc appreciation is not so spectacular, but it may put pressure on the SNB's decision, especially when the European Central Bank is preparing to ease its monetary policy.
EUR/CHF Monthly chart. Source: Conotoxia trading platform
The Swiss do not like the strong franc, they expressed it in 2011 by introducing a minimum exchange rate in the EUR/CHF pair at 1.2000. At that time, Europe was in crisis, and capital was returning to Switzerland very quickly. The current rate of franc appreciation is not so spectacular, but it may put pressure on the SNB's decision, especially when the European Central Bank is preparing to ease monetary policy.
In a Bloomberg agency survey, 5 out of 17 respondents expressed the opinion that the main interest rate in Switzerland would be reduced by 25 basis points. As early as in July, only 1 respondent presented such a view. UBS Group or Raiffeisen Bank belong to institutions that currently predict that SNB will lower interest rates from the lowest level in the world of -0.75 percent.
Meanwhile, the interest rate market is pricing the possibility of cutting interest rates by a quarter of a percentage point on the basis of futures contracts. Recent data suggest that the Swiss central bank has already taken steps to reduce the franc's strength by intervening in the currency market. The next SNB meeting will take place on 19 September, but the Swiss National Bank is known for being able to make important decisions between meetings. Therefore, with every moment when the franc strengthens, it is worth being vigilant.
Daniel Kostecki, Chief Analyst Conotoxia Ltd.
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal Opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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