CHF Analysis – 24th of March

As long as the Swiss economy continues to struggle with low economic growth and stubbornly low inflation the Swiss franc is likely to maintain its bearish bias, and the SNB its dovish stance towards monetary policy. The currency can however rally on safe haven flows during times of risk-off sentiment, as seen at the beginning of 2016.

CHF Analysis

Interest Rate

3M Target LIBOR Rate: -0.75%

Last Change: January 15, 2015 (-0.25%)

Expected Future Change: Scope to widen application of negative rates.

Next Decision: June 16

Inflation

Inflation Target: <2%

Period: Year ending February 29

CPI: -0.8% Prior: -1.30%

Next Release: April 8

Employment

Period: February

Unemployment Rate: 3.4%

Next Release: April 8

Growth

Period: Year ending December 31

GDP: 0.40% Expected: 0.1%

Next release: June 1

At -0.75% the Swiss franc holds the lowest interest rate of all the major currencies, and with inflation remaining stubbornly low we continue to maintain a fundamentally bearish bias. As always the EURCHF exchange rate continues to remain a focal point for the SNB, with President Jordan taking every opportunity to remind markets that the franc remains overvalued.

On March 17, the SNB’s Q1 Monetary Policy Assessment saw no change in the -1.25% to -0.25% target corridor for 3-month CHF Libor. The deposit rate was also left unchanged at -0.75%. Heading into the release there was some outside bets that the SNB could ease monetary policy further in response to the ECB’s latest decision to cut rates and increase QE. However despite further easing by the ECB, it is widely believed that SNB intervention in the currency market will at least for the time being remain sufficient. The SNB revised lower their inflation forecast for 2016 to -0.8% from -0.5%, 2017 to 0.1% from 0.3%, and expects 2018 inflation at 0.9%. The SNB maintained its usual rhetoric of the CHF being overvalued and that they will remain active in the foreign exchange market.

The Consumer Price Index for February saw prices fall -0.8% compared to prices a year ago, although still negative at -0.8%, CPI y/y beat estimates vs the expected decline of 1.2%. CPI y/y has been negative in Switzerland since October 2014. Inflation for the month also beat expectations at 0.2% vs the expected -0.2%, although still low, this is the first positive reading following three negative prints for the monthly figure.

Fourth quarter GDP, released March 2, beat expectations for both the q/q and y/y figure, both printing at 0.4% vs expectations of 0.2% and 0.1% respectively.

Retail Sales for January, released March 1, increased by 0.2% y/y, this follows from Decembers data of -1.6%, which was also revised downwards to -1.7%. At 0.2% this is the first improvement in retail sales for Switzerland since April of last year. PPI however continues to disappoint, January’s figures released February 22, missed estimates for the m/m at -0.4% vs expectations of -0.2%, and at -5.3% vs expectations of -5.1% for the y/y. PPI for the y/y has remained in negative territory since 2013.

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