Swiss National Bank’s bold move will kickstart the G10 rate cut cycle

Other central banks would be wary of delaying rate cuts now

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.

Market Implications

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.

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