At its monetary policy meeting this Thursday the 14th, we expect the Swiss National Bank to do nothing significant – which will keep the Euro on its upward trend against the Franc. EUR/CHF upside has been tempered by North Korea’s nuclear threats, which drive investors into the CHF safe haven, but as the Korean story fades and central banks shift towards normalization, the negative carry of the CHF weighs on its forex value, thus boosting the Euro.
This is welcome news to Switzerland’s exporters, who have suffered under an explosion in the Franc’s value. It is also a godsend to the country’s banking, insurance and pension industries, who have been tormented by the negative interest rates that were introduced to quell the CHF’s rise. The SNB is loath to spoil any of that relief, so on Thursday it will sit quietly with its hands folded – absolutely no hawkishness expected.
In the background we see marginal improvement in Switzerland’s fundamentals. August CPI inflation rose 0.50 % year on year. Higher import prices (due to a weaker CHF) bumped housing, energy, and transport tabs, while other sectors continue to deflate. The economic outlook is so-so. The July economic forecast of the KoF (Economic Research Institute) was solid, but Q2 GDP growth of 0.3% was under the expected 0.5%.
By Peter Rosenstreich