Swiss Franc retreats further as SNB vice chairman hints at lower-for-longer rates
- USD/CHF rallies to weekly highs near 0.8350, drawing closer to the 17-month high at the 0.8380 area.
- Dovish comments by SNB vice chairman Martin have added pressure on the Swissie.
- US long-term yields have bounced up, providing support to the US Dollar.
The Swiss Franc (CHF) loses ground for the fourth consecutive day against the US Dollar (USD) on Thursday, as the Swiss National Bank vice chairman discarded any change to the bank's monetary policy despite growing risks from the War in Iran. The USD/CHF pair has reached weekly highs near 0.8350, drawing closer to the 17-month highs at the 0.8380 area.
SNB Vice Chairman Antoine Martin acknowledged earlier on Thursday that the economic outlook remains subject to a significant degree of uncertainty. Martin, however, dismissed any interest rate hikes in the near term as, in his opinion, “We remain comfortably within the price stability range of 0% to 2%."
SNB-Fed monetary policy divergence is keeping the CHF on the defensive
These comments increase the monetary policy divergence between the SNB and the US Federal Reserve (Fed), which is expected to hike rates by at least 50 basis points over the next six months.
In the US, the minutes of September’s Federal Open Market Committee (FOMC) failed to alter the view that the bank will hold a wait-and-see stance in October. The bank, however, warned about inflation risks, which cemented market expectations of another rate hike in December.
In that sense, the rally in Oil prices is pushing US yields higher, as higher inflation is likely to force the Fed to pursue a restrictive monetary policy. That said, MUFG/BTMU Analyst Lloyd Chan warns that “should long-end yields rise further, market attention could shift towards the broader tightening in US financial conditions and whether policymakers begin to signal greater concern over Treasury-market conditions.” In that case, Switzerland's sound fiscal health might provide an important competitive advantage for the CHF.
SNB FAQs
The Swiss National Bank (SNB) is the country’s central bank. As an independent central bank, its mandate is to ensure price stability in the medium and long term. To ensure price stability, the SNB aims to maintain appropriate monetary conditions, which are determined by the interest rate level and exchange rates. For the SNB, price stability means a rise in the Swiss Consumer Price Index (CPI) of less than 2% per year.
The Swiss National Bank (SNB) Governing Board decides the appropriate level of its policy rate according to its price stability objective. When inflation is above target or forecasted to be above target in the foreseeable future, the bank will attempt to tame excessive price growth by raising its policy rate. Higher interest rates are generally positive for the Swiss Franc (CHF) as they lead to higher yields, making the country a more attractive place for investors. On the contrary, lower interest rates tend to weaken CHF.
Yes. The Swiss National Bank (SNB) has regularly intervened in the foreign exchange market in order to avoid the Swiss Franc (CHF) appreciating too much against other currencies. A strong CHF hurts the competitiveness of the country’s powerful export sector. Between 2011 and 2015, the SNB implemented a peg to the Euro to limit the CHF advance against it. The bank intervenes in the market using its hefty foreign exchange reserves, usually by buying foreign currencies such as the US Dollar or the Euro. During episodes of high inflation, particularly due to energy, the SNB refrains from intervening markets as a strong CHF makes energy imports cheaper, cushioning the price shock for Swiss households and businesses.
The SNB meets once a quarter – in March, June, September and December – to conduct its monetary policy assessment. Each of these assessments results in a monetary policy decision and the publication of a medium-term inflation forecast.