Chief Investment Strategist
Summary: The Swiss National Bank's surprise rate cut has set off the G10 rate cut cycle, fueling pressure on other central banks to follow suit. Bearish CHF bias intact but USDCHF and EURCHF could be volatile as global monetary policy cycle catches up with the SNB’s rate cut and most other major central banks kickstart rate cuts from June. However, the CHFJPY cross could have more room on the downside as negative carry is minimal, and intervention threat for franc and yen is mis-aligned.
The Swiss National Bank (SNB) surprised markets by slashing its key rate from 1.75% to 1.50%, marking the beginning of the G10 rate cut cycle. A rate cut was only priced in with ~30% odds by the market, and we had highlighted the case for a surprise cut in our Weekly Macro podcast on Monday.
This unconventional move underscores the SNB's response to persistent inflationary challenges, as inflation has been below the 2% target for nine months in a row. The central bank also lowered its conditional inflation forecasts and now expects inflation to average 1.4% in 2024 (vs. 1.9% forecasted in December), 1.2% in 2025 (vs. 1.6%) and 1.1% in 2026.
The appreciation of the Swiss franc (CHF) and risks of further upside as global easing cycle gets underway possibly underpinned the decision. While a strong CHF has been beneficial in curbing inflation, it has now become a double-edged sword, weighing heavily on the competitiveness of Swiss companies. By cutting rates, the SNB aims to stimulate growth and address currency challenges.
The market response was swift, with CHF depreciating against the USD and EUR. Swiss stocks also received a boost. The language on FX interventions has remained unchanged, but latest data suggests that the SNB is reducing FX sales as CHF strength has become a concern.
The SNB's move has broader implications for other central banks, signalling a shift towards looser monetary policies across major economies. The SNB decision came along with dovish tilts in much of the other central bank communications this week.
Most prominently, the Fed seemed to be unperturbed by the recent hot inflation prints, keeping the mid-year rate cut expectations beaming. The Bank of England also saw two MPC members dropping their votes to hike. The ECB commentary also remains dovish, and German and French PMIs for February suggest economic momentum remains weak. There seems to be an increasing case for most major central banks to start rate cuts by June. T
This would suggest that the next rate cut comes from Bank of Canada which meets on 5 June, if signals on Fed easing become clearer by then. Next would be ECB, which meets on 6 June followed by the Fed on 12 June and BOE on 20 June. The RBA and RBNZ could then start the rate cut cycle later in July or August. This is opening up increasing risks of dovish repricing for most major currencies, particularly CAD, EUR and GBP, as disinflation trends become more entrenched.
Bearish bias on CHF remains with SNB likely to cut again in June. CHF has already been an underperformer this year, and the rate cuts could signal an increasing preference to use the franc as a funding currency in carry trades in the current low FX volatility environment. USDCHF and EURCHF could continue to see further upside, but some volatile is likely if ECB and Fed data disappoints and dovish repricing catches pace. It may also be worth considering strategies to express a weak CHF view against JPY which has been stretched to the downside. Intervention threat for CHF and JPY is also mis-aligned, with Japanese authorities worried about excess yen weakness but Swiss authorities attempting to curb CHF strength. CHFJPY is testing the 168.50 level, and break could expose the 200DMA around 166.30.
Other recent Macro/FX articles:
22 Mar: Global Market Quick Take - Asia
21 Mar: Technical Update - USDCHF and EURCHF propelling higher. EURCHF to reach par?
20 Mar: Thematic Podcast: Japan's route to abolish negative interest rates
20 Mar: Japan’s exit from negative rates: Implications for the economy, yen and stocks
19 Mar: FOMC rate decision: How to trade the event
18 Mar: Macro & FX Podcast: Central bank meetings all over
18 Mar: Weekly FX Chartbook: Heavy central bank focus as FOMC, BOJ, BOE, SNB, RBA meet
14 Mar: FOMC vs. BOJ: Who moves the Yen?
12 Mar: Dampening equity sentiment could test GBP resilience
11 Mar: US inflation report: How to trade the event
6 Mar: Bitcoin fever is running high, again
5 Mar: FX & Macro Podcast: US jobs data, China's "Two Sessions" & Super Tuesday
28 Feb: Navigating Japanese equities: Strategies for hedging JPY exposure
23 Feb: Nvidia momentum spills over to FX markets
21 Feb: Central bank divergence on the radar: Hawkish RBNZ, Dovish BOC and SNB
15 Feb: Swiss Franc’s bearish view gets more legs
14 Feb: Sticky US inflation could make dollar strength more durable
9 Feb: Japanese Yen is throwing a warning
8 Feb: FX 101: USD Smile and portfolio impacts from King Dollar
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Commodity Strategy
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Chief Investment Strategist
Quarterly Outlook
Head of Fixed Income Strategy
Quarterly Outlook
Head of Commodity Strategy
Disclaimer
The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.
Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)