Swiss National Bank policy meeting today – alternative paths for CHF – hawkish vs. dovish

Credit Suisse analysts outline two alternatives for the SNB and thus the impact on the Swissy:

Hawkish scenario assessed at a 60% likelihood:

  • CS argue that given the recent trend of decreasing headline and core inflation rates, an increase of 50 bps would strengthen the SNB’s reputation as an effective inflation fighter. If the SNB were to hint at future interest rate increases and support the Franc, this hawkish scenario may be much more persuasive.

Dovish is at 40% probability

  • On this CS say that a lower Swiss Franc should be the result from raising rates by 50 basis points while hinting at the conclusion of the rate-hike cycle or from “only” raising rates by 25 basis points while using dovish language. The implied policy rate is about to reach its high. Such a dovish outlook ought to cause a short- and medium-term softening of the CHF.

EUR/CHF outlook:

  • We stick with our current 0.9600 EUR/CHF target for the end of this quarter and would not rule out even lower levels in the medium term should our hawkish scenario unfold.
  • Should the SNB decide not to live up to our hawkish expectations, we would not rule out a potential squeeze higher toward parity in EUR/CHF.

Earlier previews:

This article was written by Eamonn Sheridan at Source