SNB meeting: Let everyone else normalize – Forex News Preview



The Swiss National Bank will wrap up its meeting at 07:30 GMT Thursday. It will most probably keep rates at the lowest level globally and stress that it will continue to intervene in the FX market, as the franc has started to regain ground. Looking ahead though, it's difficult to be positive about the franc in an environment where foreign central banks start withdrawing liquidity but the SNB doesn't.

Return of inflation

The Swiss economy escaped from deflation lately, but don't expect any optimistic signals from the central bank this week. The improvement has been minor so far and most importantly, any positive remarks could fuel more demand for the franc, which the SNB desperately wants to avoid.

A stronger exchange rate makes exports less competitive abroad and pushes down on the prices of imported products, dampening both economic growth and inflationary pressures. As such, the SNB has been actively intervening in the FX market for years now to weaken the franc, which it considers 'highly valued'.

The Bank stopped intervening in the first quarter of the year, as the franc was losing ground on its own thanks to the spike higher in foreign bond yields. However, the second quarter has seen the franc regain some strength, forcing the SNB to resume interventions.

This meeting will likely be uneventful. The Bank will probably stress that it has no plans to exit negative rates or stop FX interventions. Various SNB officials have said as much lately and if they simply repeat this old message, any market reaction is unlikely.

Last to normalize?

In the bigger picture, the dominant theme over the next years will be which central banks raise interest rates first to keep inflation under control. The SNB could be the last to do so. The other contender is the Bank of Japan. Both are economies with chronic deflation problems.

That's bad news for the franc. In an environment where foreign interest rates are rising but Swiss ones aren't, the franc would become even less attractive.

The SNB will be thrilled about this. Waiting longer than everyone else to normalize monetary policy would kill two birds with one stone – it would minimize downside risks to the economy and demolish the franc.

In this respect, it's almost impossible to be bullish on the franc. Not only could it suffer because of widening rate differentials, but safe-haven demand for the currency could also fade as the global recovery powers up. And if that wasn't enough, the bulls will also have to fight the SNB at every step of the way.

What could revive the franc?

The main risk to this view would be some economic or political shock that hits global markets and sparks panic, sending investors towards defensive assets. Perhaps some monster covid mutation that is highly resistant to vaccines or some geopolitical 'accident' in the South China Sea or the Middle East.

That would probably breathe life into the franc. That said, whether any strength lasts is another story, as the SNB would start to intervene overtime. In other words, the longer-term trajectory for the Swiss currency seems negative, but the journey probably won't be a straight line.

Taking a technical look at euro/franc, if buyers retake control and manage to overcome the 1.0930 zone, the next obstacle may be the latest high near 1.1000.

On the downside, initial support to further declines may be found at the 1.0870 low, a violation of which would turn the focus towards the February peak of 1.0845.

Latest News

Week Ahead - Nonfarm payrolls highlight a huge week


After dovish Fed and GDP miss, can PCE inflation rise rescue the US dollar? – Forex News Preview


Euro likely to be unfazed by Eurozone GDP and inflation data – Forex News Preview


Fed meeting: Slowly getting the taper ball rolling - Forex News Preview


Disclaimer: The XM Group entities provide execution-only service and access to our Online Trading Facility, permitting a person to view and/or use the content available on or via the website, is not intended to change or expand on this, nor does it change or expand on this. Such access and use are always subject to: (i) Terms and Conditions; (ii) Risk Warnings; and (iii) Full Disclaimer. Such content is therefore provided as no more than general information. Particularly, please be aware that the contents of our Online Trading Facility are neither a solicitation, nor an offer to enter any transactions on the financial markets. Trading on any financial market involves a significant level of risk to your capital.

All material published on our Online Trading Facility is intended for educational/informational purposes only, and does not contain – nor should it be considered as containing – financial, investment tax or trading advice and recommendations; or a record of our trading prices; or an offer of, or solicitation for, a transaction in any financial instruments; or unsolicited financial promotions to you.

Any third-party content, as well as content prepared by XM, such as: opinions, news, research, analyses, prices and other information or links to third-party sites contained on this website are provided on an “as-is” basis, as general market commentary, and do not constitute investment advice. 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, it would be considered as marketing communication under the relevant laws and regulations. Please ensure that you have read and understood our Notification on Non-Independent Investment. Research and Risk Warning concerning the foregoing information, which can be accessed here.

We are using cookies to give you the best experience on our website. Read more or change your cookie settings.

Risk Warning: Your capital is at risk. Leveraged products may not be suitable for everyone. Please consider our Risk Disclosure.