As was widely expected, the Swiss National Bank held its policy unchanged. Incoming macroeconomic data has been mixed and political risk from Europe has failed to materialise, providing no impetus for the SNB to shift policy strategy.
On the economic front, despite recent improvement in inflation data, the SNB downgraded its 2018-2019 inflation forecast. The distant downgrade gave the meeting a slightly dovish tint from its prior, more cautiously optimistic, outlook.
The bank also reiterated its commitment to negative interest rates and FX intervention. With the domestic economy growing below trend and only surveys providing evidence of potential pick up, the SNB is correct in keeping policy untouched. With outlook for domestic data subdued, CHF will remain at the mercy of European events while less sensitive to shifts in global yields.
The pace of the ECB normalisations and European political uncertainty will continue to drive CHF through EURCHF direction. With European peripheral yields tightening, indicating less political concerns (French elections, Italy general election and Greek debt funding issues), CHF should weaken against the Euro. EURCHF base at 1.0860 should support a recovery bounce back to 1.1000 resistance.
By Peter Rosenstreich