Fundamental Fun with Orbex: SNB Rate Decision

The next major economic event on the schedule that could have a significant impact on the Swiss Franc is the expected monetary policy decision by the Swiss National Bank (SNB), scheduled for 9:30 CET (3:30 EST). If you are trading the franc or any of its pairs, this is an event to keep in mind.

This data, in particular, gets special attention aside from the rate decision itself, because once a quarter, the SNB makes an in-depth policy statement, and that will be released along with the decision on the rates.

General considerations

The Swiss National Bank has a single mandate to maintain price stability of the Swiss franc, so prior inflation data is considered in the run-up to the decision for traders to get a general idea what to expect from the bank.

The official inflation target is “less than 2% per annum”, and to avoid deflation. The Swiss CPI has remained well within those targets for several months, rising from 0.2% in June 2017 to the last reading of 1.2%.

Like all rate decisions, a hike in the rate can be seen as strengthening to the currency, while a cut is seen as negative. However, the consensus expectations for the rate decision is to leave it unchanged at 0.75%.

What to look for

Since inflation is in line with expectations and no rate change is expected, why pay attention to the event?

Traders are going to be focusing on expectations expressed by the bank, and where they see the economy going soon. In this regard, the quarterly monetary policy assessment will likely get the most attention.

Any changes over the previous statement would be expected to drive the currency moves following the announcement. The focus will likely be on:

• Inflation expectations: with inflation practically in the middle of the anticipated range, but having gone up over the last several months, it wouldn’t be a massive surprise if the SNB revised their inflation projections up slightly.
• “Highly valued” franc: the SNB has been struggling with what they see as an overvalued franc in comparison to other major currencies, preferring it to be closer to the 1.20 handle versus the Euro. Expect the statement to continue a reiteration that the bank is ready to intervene if needed.
• Next rate hike: the SNB is likely only going to change policy after the ECB does – and they have already committed to keeping rates steady until the controversial “summer” of 2019. Anything that would question that outlook could impact the currency

Finally, there is the issue of the diverging economies of the Eurozone and Switzerland, with the latter performing better than the other. This puts the SNB in a bit of a puzzle since a performing economy raises inflationary pressures, but on the other hand, they don’t want to strengthen the franc vs. the Euro and impact exports. Speculation of how the SNB is going to deal with that issue going forward is likely to get some attention as well.

The bottom line is that the SNB is usually reliable in its predictability, and although the event is not generally expected to imply a lot of volatility in the pair since the consensus is a reiteration of the previous outlook, it could have an impact if something were to change in the statement unexpectedly.