Since the Swiss National Bank’s last meeting, the landscape for the Swiss economy has worsened. Weaker than expected Q3 GDP data along with slow growth in key export markets have increased downside risks for the SNB.
Due to the importance of the Swiss export sector in the economy, Switzerland is vulnerable to the negative effects of a continued slowdown in global growth. Consequently, we are likely to hear the SNB highlighting these downside risks and the need for the bank to maintain a presence in the market.
Inflation Down Over Last Quarter
Alongside economic activity datasets, inflation has also weakened since September with core inflation having fallen by 0.3% over the last three months. This weakness, alongside the heavy sell-off in oil prices over the last two months, means that we are likely to see the SNB revising its inflation forecasts lower for the coming year.
CHF Still “Highly Valued”
Regarding the currency outlook, the bank’s assessment is unlikely to have changed. All year the SNB has judged that the Franc remains “highly valued” and has noted the “fragile” nature of the currency market. As such, the bank will likely reaffirm its commitment to defending the Franc against any excessive strengthening.
In terms of an outlook on future monetary policy, the SNB will continue to move cautiously. The message over the year has been that while key risk factors such as Brexit, the US/China trade war and other key geopolitical situations remain prevalent, the risk of safe-haven flow inflating CHF is still present and must be dealt with.
To this end, we are unlikely to see CHF move back towards policy normalization until these risks abate and certainly not until the ECB begins hiking. If the ECB presses ahead with a rate hike post-summer 2019, we could, therefore, see the SNB lift rates in Q4 2019.
EURCHF remains on the downward trajectory which has propelled price action this year. However, momentum has slowed recently after the rebound off the recent 1.1167 though price is now heading down to test the level once again. A break here will be needed to propel fresh bearish momentum while a further bounce will keep the pair range bound. Until the 1.15 Q3 high is broken, focus remains on further downside eventually.