The Swiss franc fell to new lows against the euro and dollar this morning after the Swiss National Bank announced to keep rates unchanged and FX intervention at a high pace if necessary, considering the strengthening of CHF. In the short term, the central bank upwardly revised its inflation outlook since June, mainly due to a rise in oil prices.
This year’s inflation forecasts for Q3 and Q4 remain in deflationary territory, while the central bank foresees rates to edge back into positive territory in 2021 (0.1%) and increase slightly further in 2022 (0.2%). Over the entire forecast period, the interest rate is assumed to remain at the current -0.75%.
The baseline scenario laid out in the SNB’s statement, in which the global economy sees a robust recovery in Q3 2020, is subject to a lot of uncertainty.
The continuously accelerating surges seen in the UK, the eurozone and in Switzerland itself, could necessitate renewed containment measures. However, activity in Switzerland has picked up significantly since the start of the outbreak due to the relaxation of health policy measures and to fiscal and monetary policy support. The SNB therefore expects a strong rise in GDP in the third quarter with a likely extension into 2021.
After the statement was released, news headlines announced that the SNB will publish currency intervention data quarterly instead of the previous annual publications. This will give markets more timely data on the SNB’s interventions, instead of having to rely on sight deposits which are merely a proxy of the actual intervention. If markets see currency intervention on a more regular basis, this potentially reduces the amount the SNB needs to intervene by.
Swiss franc falls against the euro after SNB sticks with FX interventions to combat CHF strength
Author: Ima Sammani, FX Market Analyst