Growing list of reasons to lean against Swiss franc upside
Oct 7 (Reuters) -The FX reserve data from the SNB for September provides yet another reason to lean against CHF upside.
Reserves increased for the first time since April, up CHF 21.66bln, marking the second largest monthly rise since December 2021. Thus, with the SNB displaying a preference to push against a strong Swiss franc, the bias to fade gains in the currency remains, particularly against the dollar and yen.
Last week, the new SNB Governor, Martin Schlegel, opened the door to further rate cuts, but more importantly did not rule out a return to negative rates.
With inflation undershooting the central bank’s forecast by 0.3 percentage points at 0.8%, not only does this back the case for additional rate cuts but given the limited room for maneuver on the interest rate front, the SNB may have to lean more heavily on intervention. More so when USD/CHF is nearing 0.84, which has provided a floor for the pair.
While an escalation in geopolitical tensions has somewhat curbed the recent pullback in the franc, the bigger picture is that the currency could soon become the funding currency of choice, particularly with the Bank of Japan on course to raise rates further. Therefore, it is not hard to imagine a Japanese policy rate above Swiss rates in the next six months, which should put a limit to CHF/JPY upside.
Consequently, with the SNB showing more activity in FX, rising geopolitical tensiosn fuelling rallies in the Swiss currency would likely provide better levels for CHF bears to enter.
For more click on FXBUZ
CHF FX reserves https://tmsnrt.rs/3YaVTW6
snb inflation vs cpi https://tmsnrt.rs/47YPws9
(Justin McQueen is a Reuters market analyst. The views expressed are his own.)
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