Did we forget CHF?
With the sudden pivot by the Fed in mid-December, it has been easy to marginalise otherwise high salience events. One such largely overlooked development has been within Switzerland and its Franc. The Swissy has been a key currency as it has been one of those major currencies undertaking a program of FX intervention. Having now sold approximately 100bn Francs worth of FX reserves in favour of the local currency, the programme has been far from insignificant for FX flows. Now that demand for the Franc at the central bank level has disappeared, may there be room for one of the world’s preeminent safe haven currencies to depreciate.
Already since the decision we have seen many CHF crosses display a weaker Franc. Perhaps most notably has been EURCHF gaining in the aftermath of a dual ECB & SNB decision day. Looking at SNB inflation forecasts shows one conclusive outcome: expectations are that the relatively most spike inflation has been dealt with. Accordingly, policy normalisation is the prescribed policy within which FX interventions have little place.
With the central bank confirming to further such interventions are no longer on the table and the persuasion towards the sale of FX reserve has concluded, spot CHF prices could weaken. Such moves should be considered within the wider risk environment considering the Swissy’s role within the FX space. Rates in Switzerland are held at 1.75% and the bias will be towards rate cuts looking forward. Locally, inflation rates have remained sub-2% throughout the second half of this year. A push towards parity in EUR/CHF in 2024 may not be unthinkable against such a backdrop.
Discussion and Analysis by Charles Porter
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